ARTICLE II

INVESTMENT OF ESCROWED FUNDS

2.1 The Escrow Agent shall accept, hold and safeguard the Escrowed Funds during
the term of this Agreement and shall invest the Escrowed Funds in [insert title of initial
account/investment), or in such other investment as Buyer and Member shall jointly instruct the
Escrow Agent in writing (the [insert title of initial account/investment] or such other
investment, the "Permitted Investment"). All income earned on the Escrowed Funds will accrue
for the benefit of Member.
2.2 As and when any amount is needed for a distribution under this Agreement, the
Escrow Agent shall cause a sufficient amount of the Permitted Investment to be converted into
cash. The Escrow Agent shall not be liable for any loss or liability arising in respect of the
Permitted Investment except to the extent that such loss or liability arose from the Escrow
Agent's gross negligence, willful misconduct or breach of this Agreement. The Escrow Agent is
hereby authorized, in making or disposing of any Pennitted Investment, to deal with itself (in its
individual capacity) or with anyone or more of its Affiliates, whether it or any such Affiliate is
acting as agent of the Escrow Agent or for any third person or dealing as principal for its own
account.
I
2.3 . The Escrow Agent shall mail to Buyer and Member a written accounting of all
Permitted Investments and other transactions relating to the Escrowed Funds not less frequently
than quarterly.
ARTICLEll
NON-CLAIM DISBURSEMENTS
3.1 After the Final Cash Purchase Price is fmally determined pursuant to Section 2.3
of the Purchase Agreement, Buyer and Member shall, if the Final Cash Purchase Price is less
than the Estimated Cash Purchase Price, deliver to the Escrow Agent a joint written instruction
authorizing and directing the Escrow Agent to disburse to Buyer from the Escrowed Funds the
amount set forth in such instruction. As soon as practicable following receipt of such joint
written instruction, but in any event no later than five (5) business days thereafter, the Escrow
Agent shall disburse to Buyer, by wire transfer of immediately available funds, the amount set
forth therein; provided however, that if the amount set forth therein exceeds $350,000, then
Member shall immediately remit to the Escrow Agent, in replenishment of a portion of the
Escrowed Funds disbursed to Buyer pursuant to this Section 3.1, cash in the amount by which
the amount set forth in such joint written instruction exceeds $350,000, in immediately available
funds, and the Escrow Agent shall deliver to Buyer and Member an acknowledgement of its
receipt of such payment from Member as promptly as practicable after receipt thereof.
3.2 On the IS-month anniversary of the Effective Date (the "First Release Date"),
Buyer and Member shall deliver to the Escrow Agent a joint written instruction authorizing and
directing the Escrow Agent to disburse to Member from the Escrowed Funds an amount equal to:
(a) $1,000,000 minus (b) the sum of (i) all Escrowed Funds disbursed to Buyer on or prior to the
First Release Date pursuant to Article IV hereof plus (ii) all Escrowed Funds reserved as of the
First Release Date in connection with any Claim made pursuant to Article IV hereof that is
2 6 3 ~
pending, unresolved or unpaid as of the First Release Date. As soon as practicable following
receipt of such joint written instruction, but in any event no later than five (5) business days
thereafter, the Escrow Agent shall disburse to Member, by wire transfer of immediately available
funds, the amount set forth therein.
3.3 On the second anniversary of the Effective Date (such second anniversary, the
"Second Release Date"), Buyer and Member shall deliver to the Escrow Agent a joint written
instruction authorizing and.directing the Escrow Agent to disburse to Member from the
Escrowed Funds an amount equal to: (a) the remaining amount of the Escrowed Funds
(including all income earned thereon) minus (b) the sum of (i) an amount (the "Litigation Claims
Amount") determined by Guy A. Gibson and Michael J. McCloskey (or their respective
successors in office if either of them is no longer employed by Buyer or Parent at such time),
acting in good faith but otherwise in their sole discretion, that represents such individuals' best
estimate of the totalamount for which Member may be liable pursuant to Section 7.2 of the
Purchase Agreement with respect to all Litigation Claims existing as of the Second Release Date
plus (ii) all Escrowed Funds reserved as of the Second Release Date in connection with any
Claim (other than Litigation Claims) made pursuant to Article N hereof that is pending,
unresolved or unpaid as of the Second Release Date (collectively, the "Final Pending Claims'').
As soon as practicable following receipt of such joint written instruction, but in any event no
later than five (5) business days thereafter, the Escrow Agent s ~ l l disburse to Member, by wire
transfer of immediately Ilvailable funds, the amount set forth therein.
ARTICLEN
CLAIM DISBURSEMENTS; DISPUTE OF CLAIMS
4.1 If, and to the extent that, Buyer or Parent in good faith determines that Member or
Duques is under an indemnification obligation pursuant to Section 7.1 or 7.2 of the Purchase
Agreement, Buyer or Parent, as the caSe may be, shall deliver to each of the Escrow Agent and
Member a notice (each, a "Claim Notice") of such claim (each, a "Claim") against the Escrow
Account, stating the amount of such Claim and setting forth a brief description with reasonable
specificity of the facts upon which such Claim is based and a reference to the provision or
provisions of the Purchase Agreement under which such Claim is being made. Buyer or Parent,
as the case may be, shall also deliver to the Escrow Agent written proof of delivery to Member
of a copy of such Claim Notice (which proof may consist of the facsimile confirmation if sent by
facsimile, the signed receipt if delivered by hand or a photocopy of the overnight courier
receipt). In the event that a Claim Notice relates to a Litigation Claim, such Claim Notice shall
be accompanied by documentation showing with reasonable specificity the basis for the amount
specified in such Claim Notice. Unless the Escrow Agent receives a timely Objection Notice
from Member pursuant to Section 4.2(a) hereof, the Escrow Agent shall disburse to Buyer or
Parent, as the case may be, by wire transfero( immediately available funds, a portion of the
Escrowed Funds equal to the amount specified in the Claim Notice. If the Escrow Agent does
receive a timely Objection Notice from Member pursuant to Section 4.2(a) hereof, the Escrow
Agent shall disburse to Buyer or Parent, as the case may be, by wire transfer of immediately
available funds, a portion of the Escrowed Funds equal to the portion, if any, of the amount
specified in the Claim Notice that is not being contested by Member pursuant to the Objection
Notice.
263l!
4.2 (a) Member shall have the right to dispute any Claim against the Escrow
, Account within 15 business days following receipt by Member ofa copy of a Claim Notice by
delivering to the Escrow Agent and Buyer or Parent, as the case may be, written notice (an
"Objection Notice'') that Member disputes the matter or matters underlying such Claim Notice
either with respect to the Validity or the amount of the Claim (or both); provided. however, that
Member shall not be entitled to dispute any Litigation Claim if the applicable Claim Notice is
accompanied by documentation showing with reasonable specificity the basis for the amount
specified in such Claim Notice. Each Objection Notice shall include the basis of the objection
and a description of the portion of the Claim that is being contested by
(b) Upon timely receipt of an Objection Notice, the Escrow Agent shall not make any
delivery of the contested portion of the applicable Claim, except upon receipt of (i) a joint
written instruction from Buyer or Parent, as the case may be, and Member authorizing the release
to Buyer or Parent, as the case may be, of the contested portion of the applicable Claim or (ii) a
Final Order (as defined below);' provided. however, that the Escrow Agent shall reserve a portion
of the Escrowed Funds equal to the amount of the contested portion of the applicable Claim until
such time as it receives such joint written instruction or Final Order. As soon as practicable
following receipt of such joint written instruction or Final Order, but in any event no later than
five (5) business days thereafter, the Escrow Agent shall disburse, by wire transfer of
immediately available funds, the amount or amounts set forth therein to the recipient or '
recipients set forth therein. Buyer, Parent and Member agree to negotiate in good faith to resolve
as promptly as practicable any Claim or portion thereof that is the subject of an Objection
Notice.
4.3 (a) For purposes of this Agreement, a "Final Order" shall mean a final judgment
of a court of competent jurisdiction having the authority to determilte the amount of, and liability
with respect to, any Claim, and the denial of, or expiration of all rights to, an appeal related
thereto.
(b) The Escrow Agent shall be entitled to receive and may conclusively rely upon an
opinion'of counsel from Buyer's, Parent's or Member's respective legal counsel accompanying
each Final Order, to the effect that the relevant court had authority to determine the amount and
liability with respect to the Claim. and that such court has rendered a final judgment for which all
related rights to appeal have been denied or expired. In the event that Buyer's, Parent's or
Member's respective legal counsel disagree on the existence of a Final Order, the Escrow Agent
shall be entitled to rely upon the decision of a court of competent jurisdiction.
ARTICLE V
COMPENSATION; EXPENSES
In consideration for its services as Escrow Agent, the Escrow Agent shall be
entitled to receive the compensation set forth in Exhibit A attached hereto, as well as the
reimbursement of all reasonable out-of-pocket costs and expenses actually incurred by the
Escrow Agent in the performance of its duties hereunder. Such compensation and expenses shall
be paid 50% by Buyer and 50% by Member (via disbursement from the Escrowed Funds).

ARTICLE VI
EXCULPATION AND INDEMNIFICATION
6.1 The obligations and duties of the Escrow Agent are confined to those specifically
set forth in this Agreement. In the event that any of the terms and provisions of any other
agreement between any of the parties hereto conflict or are inconsistent with any of the terms and
provisions of this Agreement, the terms and provisions of this Agreement shall govern and
control in all respects. The Escrow Agent shall not be subject to, nor be under any obligation to
ascertain or construe the terms and conditions of, any other instrument, whether or not now or
hereafter deposited with or delivered to the Escrow Agent or referred to in this Agreement, nor
shall the Escrow Agent be obligated to inquire as to the form, execution, sufficiency or validity
of any such instrument nor to inquire as to the identity, authority or rights of the person or
persons executing or delivering same.
6.2 The Escrow Agent shall not be personally liable for any act that it may do or omit
to do hereunder in good faith and in the exercise of its own best judgment. Any act done or
omitted to be done by the Escrow Agent pursuant to the advice of its attorneys shall be deemed
to have been performed or omitted in good faith by the Escrow Agent.
6.3 If the Escrow Agent is notified of any dispute, disagreement or legal action
involving Buyer, Parent, Member, Duques or any other Person relating to or arising in
connection with the Escrow Account, the Escrowed Funds or the performance of the Escrow
Agent's duties under this Agreement, the Escrow Agent will not be required to determine the
controversy or to take any action regarding it. The Escrow Agent may hold all documents and
funds and may wait for settlement of any such controversy by final appropriate legal
proceedings, arbitration, or other means as, in the Escrow Agent's discretion, it may require. In
such event, the Escrow Agent will not be liable for interest (other than as provided in this
Agreement) or damages resulting therefrom.
6.4 Buyer and Member hereby agree,jointly and severally, to indemnify and hold the
Escrow Agent harmless from and against all out-of-pocket costs, damages, judgments,
reasonable attorneys' fees, expenses, obligations and liabilities of every kind and nature which
the Escrow Agent may incur, sustain or be required to pay in connection with or arising out of
this Agreement, unless the aforementioned results from the Escrow Agent's gross negligence,
willful misconduct or breach of this Agreement, and to pay the Escrow Agent on demand the
amount of all such costs, damages, judgments, reasonable attorneys' fees, expenses, obligations
and liabilities. The costs and expenses of enforcing this right of indemnification also shall be
paid 50% by Buyer and 50% by Member (via disbursement from the Escrowed Funds). The
foregoing indemnities in this paragraph shall survive the resignation or substitution of the
Escrow Agent or the termination of this Agreement.
6.5 If the Escrowed FundS are at any time attached, garnished or levied upon under
any court order or in case the payment of any such Escrowed Funds is stayed or enjoined by any
court order, or in case any order, judgment or decree is made or entered by any court affecting
such Escrowed Funds or any portion thereof, then in any of such events, the Escrow Agent is
authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or
decree which it is advised by legal counsel is binding upon it. If the Escrow Agent complies

with any such order, writ, judgment or decree, it will not be liable to any of the parties to this
Agreement or to any other Person by reason of such compliance even though such order, writ,
judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated.
6.6 No provision of this Agreement shall require the Escrow Agent to risk or advance
its own funds or otherwise incur .any ffuancialliability or potential financial liability in the
performance of its duties or the exercise of its rights hereunder.
ARTICLE VII
TAXES AND REPORTS
7.1 The parties hereto agree that, for tax reporting purposes, the investment earnings,
including interest, dividends and other income, from the investment of the Escrowed Funds
. (collectively, the "EscrowEamings'') shall, as of the end of each calendar year and to the extent
. required by the Internal Revenue Service (the "IRS',), be Ieported as having been earned by
Member. The parties hereto further agree that (a) all parties hereto shall file all Tax. Returns
consistent with the foregoing treatment and (b) the Escrow Agent will report income, including,
without limitation, the filing of Form 1099 with the IRS, consistent with such treatment
7.2 In order to permit Member to satisfy its tax. obligations hereunder, as soon as
practicable following the end of each calendar quarter and upon the Termination Date, the
Escrow Agent shall provide a report to Member indicating the amount of taxable income or gain
realized on the Escrowed Funds during such calendar quarter or the period from the most recent
calendar quarter to the Termination Date, as applicable.
7.3 The Escrow Agent shall be responsible only for income reporting to the IRS with
respect to income earned on the EsCrowed Funds,including, without limitation, filing Form 1099
with the IRS. The Escrow Agent shall have no other duties or responsibilities with respect to
admjnjstering tax withholding, payments or reporting for any Person receiving distributions
pursuant to this Agreement
7.4 Unless Member shall otherwise provide in writing to the Escrow Agent prior to
the end of any calendar year, as soon as practicable following the end of each calendar year, the
Escrow Agent shall distribute to Member an amount of cash equal to forty percent (40%) of the
Escrow Earnings, in addition to and regardless of any required IRS back-up withholding or non-
resident alien withholding that the Escrow Agent has already performed for Member in
accordance with the Internal Revenue Code of 1986, as amended.
7.5 Each of the parties hereby agrees to provide the EscrowAgent with executed IRS
Form W-9 or W-8 and such other forms and documents that the Escrow Agent may reasonably
request
ARTICLEVllI
TERMINATION OF AGREEMENT
This Agreement shall terminate on the earlier of (a) the d a ~ on which all amounts
held in the Escrow Account have been disbursed according to the terms hereof or (b) the date on
which Litigation Claims existing as of the Second Release Date and all Fin8l Pending Claims
2 6 3 ~
have been finally resolved and the Escrow Agent has paid all amounts relating thereto in
accordance with the provisions of Article N hereof (such earlier date, the "Termination Date'').
The Escrow Agent shall, on the business day next succeeding the Termination Date, disburse to
Member any remaining amount of the Escrowed Funds (including all income earned thereon).
The rights and obligations of the parties hereto shall survive the termination hereof.
ARTICLE IX
RESIGNATION OF ESCROW AGENT
The Escrow Agent may resign at any time upon giving at least thirty (30) days'
prior written notice to Member, Buyer and Parent; provided, however, that no such resignation
shall become effective until the appointment of a successor escrow agent which shall be
accomplished as follows. Member and Buyer shall use their respective reasonable best efforts to
select a successor escrow agent within thirty (30) days after receiving such notice. If Member
and Buyer fail to appoint 'a successor escrow agent within such time,the Escrow Agent shall
hIlve the right to appoint a successor escrow agent. The successor escrow agent shall execute
and deliver an instrument accepting such appointment and it shall, without further acts, be vested
with all the estates, properties, rights, powers and duties of the predecessor escrow agent as if '
originally named as escrow agent. Upon delivery of such instrument, the Escrow Agent shall be
discharged from any further duties and liability under this Agreement. The Escrow Agent shall
be paid any outstanding fees and expenses prior ,to transferring assets to a successor escrow
agent.
ARTICLE X
NOTICES
10.1 All notices required by this Agreement shall be in writing and shall be deemed to
have been received (a) the same business day if sent by facsimile transmission (with a
confirming copy sent the same business day by registered or certified mail), or by hand delivery
(with signed return receipt), or (b) the next business day if sent by nationally recognized
overnight courier, in any case to the respective addresses as follows:
If to Member:
Legent Group, LLC
1239 North 138th Circle
Omaha, Nebraska 68154-5100
Attention: David P. Ballis
Facsimile: (402) 964-0192
2636
(with a copy to)
Sidley Austin LLP
1 South Dearborn Street
Chicago, Illinois 60603
Attention: Frederick C. Lowinger
Luke J. Valentino
Facsimile: (312) 853-7036
If to Buyer or Parent:
United Western Bank
700 17th Street, Suite 2100 .
Denver, CO 80202
Attention: Theodore J. Abariotes
Facsimile: (303) 390-0952
(with a copy to)
Hunton & Williams LLP
1445 Ross Avenue, Suite 3700
Dallas, TX 75202
Attention: Allen McConnell
Facsimile: (214) 740-7147
If to the Escrow Agent:
Attention:
Facsimile:
or to such other Person or address as any party hereto may furnish to the other parties hereto in
writing.
ARTICLE Xl
GOVERNING LAW
This Agreement, and all disputes between the parties under or relating to this
Agreement or the facts and circumstances leading to its execution, whether in contract, tort or
otherwise, shall be construed and interpreted according to the intemallaws of the State of
Delaware, excluding any choice of law rule or principle that may result in the application of the
laws of another jurisdiction.
2 6 3 ~
ARTICLE XII
AUTOMATIC SUCCESSION
Any bank or corporation into which the Escrow Agent may be merged or with
which it may be consolidated, or any bank or corporation to whom the Escrow Agent may
transfer all or substantially all of its escrow business, shall be the successor to the Escrow Agent
without the execution or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding.
ARTICLE:xm
MISCELLANEOUS
13.1 Member, Buyer, Parent and the Escrow Agent may'amend, modify and/or
supplement this Agreement as they may mutually agree in writing.
13.2 This Agreement may be executed in one or more counterparts (including, without
limitation, by facsimile or portable document format (pDF, each of which shall be deemed an
original, but all of which together shall constitute but one and the same Agreement
13.3 Except as expressly provided herein, the rights and obligations of a party
hereunder may not be assigned, transferred or encumbered without the prior written consent of
the other parties. Subject to the foregoing, this Agreement shall be bindU1g.upon, inure to the
benefit of, and be enforceable by the respective successors and permitted assigns of the parties
hereto. Nothing contained herein shall be deemed to confer upon any third party any right or
remedy under or by reason of this Agreement.
13.4 The headings used in this Agreement are for convenience only and shall not
constitute a part of this Agreement.
13.5 The parties agree that if any provision of this Agreement shall under any
circumstances be deemed invalid or inoperative this Agreement shall be construed with the
invalid or inoperative provisions deleted and the rights and obligations of the parties shall be ,
c o ~ and enforced accordingly.
[Remainder of page intentionally left blank; signature page follows.]
2638
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written above.
BUYER:
UNITED WESTERN BANK.
By: ____________________ ___
Name:
Title:
PARENT:
UNITED WESTERN BANCORP, INC.
By: ____________________ ___
Name:
Title:
MEMBER:
LEGENT GROUP, LLC
By: ____________________ __
Name:
Title:
THE ESCROW AGENT:
[WELLS FARGO BANK, NATIONAL
ASSOCIATION]
By: ____________________ __
Name:
Title:
[Signature Agreement]
EXHIBIT A
ESCROW AGENT COMPENSATION
[To be provided by Escrow Agent]
2640
EXBIBIT 1.lCC)
FORM OF
REGISTRATION RIGHTS AGREEMENT
TIllS REGISTRATION RIGHTS AGREEMENT (this "Agreement'') is made and entered
into as of --,2010 (the "Effective Date',), by and among United Western Bancorp,
Inc., a Colorado corporation (the "Company") and Legent Group, LLC, a Delaware limited
liability company (the ''Legent Group'').
WHEREAS, United Western Bank, a federal savings bank and a wholly-owned subsidiary
of the Company ("UWB"), the Company, Legent Group and Henry C. Duques have entered into
the Purchase Agreement (as hereinafter defined), pursuant to which, amoilg other things, UWB
has agreed to purchase from Legent Group all of the issued and outstanding Units of membership
interest ofLegent Clearing, LLC, a Delaware limited liability company (''Legent Clearing',);
WHEREAS, capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to such terms in the Purchase Agreement; and
WHEREAS, the Purchase Agreement contemplates that a portion of the consideration to
be delivered to Legent.Group in connection with its sale ofall of the issued and outstanding units
of membership interest ofLegent Clearing shall consist of 2,419,688 shares of Common Stock
(as hereinafter defined).
NOW, THEREFORE, in consideration of the mutual promises contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
forth below:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms have the respective meanings set
"Business Day" shall mean any day that is not a Saturday or Sunday or a day on
which banks are required or permitted to be closed in the State of New York or t h ~ State of
Colorado.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal securities laws.
"Common Stock" shall mean the Common Stock of the Company, par value
$0.0001 per share, as constituted on the Effective Date, and any capital stock into which such
. Common Stock may thereafter be changed, and shall also include capital stock of the Company of
any other class (regardless of how denominated) issued to the holders of shares of any Common
Stock upon any reclassification thereof which is also not preferred as to dividends or liquidation
over any other class of stock of the Company and which is not subject to redemption. .
CHI S32S0S0v.3 2641
"Company" means United Western Bancorp, Inc., a Colorado corporation, and
any successor corporation.
"Convertible Securities" shall mean evidences of indebtedness, shares of capital.
stock or other securities that are convertible into or exchangeable for, with or without payment of
additional consideration in cash or property, shares of Common Stock, either immediately or
upon the occurrence of a specified date or a specified event or the passage of time.
"Demand Registration" shall have the meaning set forth in Section 3.2(b)(i) hereof.
"Demand Registration Statement" shall have the meaning set forth in Section
3.2(b)(ii) hereof.
"Designated Office" shall mean, initially, the office of the Company at 700 17
th
Street, Suite 2100, Denver, Colorado 80202; provided, however, that the Company may from
time to time change the Designated Office to another office of the Company or its agent within
the United States by notice given to all SS Holders at least ten Business Days prior to the
effective date of such change.
"Effective Date" shall have the meaning set forth in the preamble hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect from time to time.
"Holder" shall mean, with respect to each share of the Subject Stock, the Person
in whose name such share of Subject Stock is registered on the books of the Company
maintained for such purpose.
"Legent Clearing" shall mean Legent Clearing, LLC, a Delaware limited liability
company.
"Legent Group" shall mean Legent Group, LLC, a Delaware limited liability
company.
"Majority Selling Holders" shall mean those Selling Holders whose shares of
Subject Stock included in a registration under Article 3 hereof represents a majority of the shares
of Subject Stock included therein by all Selling Holders.
"Majority SS Holders" shall mean, with respect to a given determination, the
Holders of Subject Stock representing more than fifty percent (50%) of all Subject Stock directly
affected by such determination.
"Mandatory Shelf Registration Statement" shall have the meaning set forth in
,
Section 3.2(a) hereof.
"Opinion of Counsel" means a written opinion of counsel (who may be an
employee of a Holder) chosen by the Holder of any Subject Stock, addressed to the Company
and in form and substance reasonably acceptable to the Company.
2
2642

"Original Subject Stock" shall mean the Subject Stock originally issued by the
Company to Legent Group on the Effective Date.
"Person" shall mean any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, incorporated organization" association, corporation,
institution, public benefit corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality, division, agency, body
or department thereot).
"ProSPectus" shall mean the prospectus included in 'any Registration Statement,
incudingany preliminary prospectus, and all other amendments and supplements to any such
prospectus, including post-effective amendments, and all material incorporated by reference or
deemed to be incorporated by reference, if any, in such prospectus.
''Purchase Agreemenf' shall mean that certain Purchase Agreement, dated as of
June 9, 2010, by and among UWB, the Company, Legent Group and Henry C. Duques.
"Register," "registered" and ''registration'' shall refer to a registration effected by
preparing and filing a registration statement on Form S-1 or S-3 in compliance with the
Securities Act, and the declaration or ordering by the Commission of effectiveness of such
registration statement
"Registrable Securities" shall mean any shares of Subject Stock; provided.
however, that, with respect to any particular Registrable Securities, such securities will cease to
be Registrable Securities when (i) a registration statement covering such Registrable Securities
has been declared effective under the Securities Act by the Commission and such Registrable
Securities have been disposed of pursuant to such effective registration statement, or (ii) the
entire amount of such Registrable Securities may be sold in a single sale, based on the Opinion
of Counsel, without any limitation as to volume or manner pursuant to Rule 144 promulgated
under the Securities Act.
"Registration Statemenf' shall mean any Mandatory Registration Statement or
Demand Registration Statement.
"Securities Acf' shall mean the Securities Act of 1933, as amended, or any
successor legislation to such statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time.
"Selling Holders" shall mean, with respect to a specified registration under
Article 3 hereof, SS Holders whose Registrable Securities are included in such registration.
ceSS Holders" shall mean, collectively, all Holders of Subject Stock.
"Stock Purchase Rights" shall mean any options, warrants or other securities or
rights to subscribe to or exercisable for the purchase of shares of Common Stock or Convertible
Securities, whether or not immediately exercisable.
"Subject Stock" generally shall mean the Original Subject Stock and all Common
Stock issued upon Transfer, division or combination of, or in substitution for, sUch Original
3
2643
Subject Stock or any other such Common Stock until such time as such shares of Common Stock
have either been (a) Transferred in a public offering pursuant to a registration statement filed
under the Securities Act or (b) Transferred in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1) thereof with all
transfer restrictions and restrictive legends with respect to such Common Stock being removed in
connection with such transaction. "Subject Stock" for the purposes of Article 3 hereof shall have
the meaning set forth in Section 3.1 hereof.
"Transfer" shall mean any disposition of any Subject Stock or of any interest in
either thereof, which would constitute a "sale" thereof within the meaning of the Securities Act.
"UWB"shall mean United Western Bank, a federal savings bank and a wholly-
owned subsidiary of the Company.
"Violation" shall have the meaning set forth in Section 3.7(al hereof.
"Withdrawal" shall have the meaning set forth in Section 3.2(b)(iii) hereof.
ARTICLE 2
TRANSFER RESTRICTIONS
The Holder, by acceptance of any Subject Stock, agrees to be bound by the
provisions of this Article 2.
2.1. Restrictions on Transfers. No shares of Subject Stock shall be Transferred
other than pursuant to an effective registration statement Under the Securities Act or an exemption
from the registration provisions thereof. No Transfer of any shares of Subject Stock other than
pursuant to such an effective registration statement shall be valid or effective unless the Holderof
such Subject Stock proposed to be Transferred shall have delivered to the Company an Opinion of
Counsel to the effect that such proposed Transfer is exempt from. the registration requirements of
the Securities Act. Each certificate, if any, evidencing such shares of Subject Stock issued upon
any such Transfer, other than in a public offering pursuant to an effective registration statement,
shall bear the restrictive legend set forth in Section 2.2 hereof, unless the Holder delivers to the
Company an Opinion of Counsel to the effect that such legend is not required for the purposes of
compliance with the Securities Act. Holders of the SUbject Stock shall not be entitled to Transfer
such Subject Stock except in accordance with this Section 2.1. Notwithstanding the foregoing or
anything else herein to the contrary, the restrictions set forth in this Section 2.1 shall not apply to
any Transfer or distribution of the Original Subject Stock by Legent Group to the members of
Legent Group as contemplated by the Purchase Agreement.
2.2. Restrictive Legend. Except as otherwise provided in this Article 2, each
certificate for Subject Stock initially issued on the Effective Date, and each certificate for
Subject Stock issued to any subsequent transferee of any Subject Stock, shall be stamped or
otherwise imprinted with two legends in substantially the following forms:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HA VB NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT',), OR ANY STATE SECURITIES LAW. NO TRANSFER OF
4
2644
THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID
OR EFFECTNE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO
AN EFFECTNE REGISTRATION STATEMENT UNDER THE ACT OR (B)
THE HOLDER OF THE SHARES PROPOSED TO BE TRANSFERRED
SHALL HA VB DELIVERED TO THE COMPANY AN OPINION OF
COUNSEL THAT SUCH PROPOSED TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT."
"THE. SHARES REPRESENTED BY THIS CERTIFICATE ARE ENTITLED
TO THE BENEFIT OF AND ARE SUBJECT TO CERTAIN OBLIGATIONS
SET FORTH IN A REGISTRATION RIGHTS AGREEMENT BETWEEN THE
COMPANY AND THE ORIGINAL HOLDER OF SUCH SHARES. A COpy
OF SUCH REGISTRATION RIGHTS AGREEMENT IS AVAILABLE FROM
THE COMPANY UPON REQUEST."
2.3. Termination of Securities Law Restrictions. Notwithstanding the
foregoing provisions of this Article 2, the restrictions imPosed by Section 2.1 hereof upon the
transferability of the Subject Stock and the legend requirements of Section 2.2 hereof shall
terminate as to any particular shares of Subject Stock when the Company shall have received
from the Holder thereof an Opinion of Counsel to the effect that such legend is not required in
order to ensure compliance with the Securities Act. Wherever the restrictions imposed by
Sections 2.1 and 2.2 hereof shall terminate as to any shares of Subject Stock, as hereinabove
provided, the Holder thereof shall be entitled to receive from the Company, at the Company's
expense, a new certificate representing such Common Stock not bearing the applicable restrictive
legend set forth in Section 2.2 hereof, upon surrender to the Company at the Designated Office
of the certificate for such shares of Subject Stock with respect to which such restrictions have
terminated, which certificate shall promptly be cancelled.
2.4. Listing on Stock Exchange. For so long as the Company shall list any
shares of Common Stock on any stock exchange, it shall, at its expense, list thereon, maintain
and, when necessary, increase such listing of,. all shares of Subject Stock.
ARTICLE 3
REGISTRATION RIGHTS
3.1. Definition of Subject Stock. For the purposes ofthis Article 3, "Subject
Stock" shall be deemed to include not only shares of Common Stock already included in the
general defmition of such term, but also (i) any other securities issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange by the Company generally for, or in
replacement by the Company generally of, any shares of Subject Stock and (ii) any securities
issued in exchange for any such Subject Stock in any merger or reorganization of the Company,
but in either such case only so long as such securities have not been registered and Transferred
pursuant to the Securities Act or Transferred in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4( 1) thereof so that all
transfer restrictions and restrictive legends with respect to such securities are removed in
connection with such Transfer.
5
2645
3.2. Mandatory Registration.
(a) Mandatory Shelf Registration . As soon as practicable following the
Effective Date, but in any event no later than 60 days after the Effective Date, the Company shall
prepare and file with the Commission a RegistratiOn Statement on Form S-3 providing for the
resale of all of the Registrable Securities pursuant to Rule 415 promulgated under the Securities
Act (such registration statement, including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective amendments, all exhibits
thereto and all material incorporated by reference or deemed to be incorporated by reference, if
any, in such registration statement, the "Mandatory Shelf Registration Statement"), and shall use
its commerciaUyreasonable efforts to cause such Mandatory Shelf Registration Statement to be
declared effective under the Securities Act as promptly as practicable thereafter (but in no . event
later than 90 days after the Effective Date); provided, however, that if on the Effective Date the
Company is not eligible to use Form S-3, the Company (i) shall notify the SS Holders of such
ineligibility in writing and (ti) shall, subject to Section 3.2(b), continue to be obligated to tile the
. Mandatory Shelf Registration Statement if and when it becomes eligible to use Form S-3. The
Company shall not, without the written consent of the Majority SS Holders, permit any securities
other than the Registrable SecuritieS to be included in the Mandatory Shelf Registration
Statement. The Company shall use its commercially reasonable efforts to keep the Mandatory
Shelf Registration Statement continuously effective under the Securities Act until such time as
all of the Registrable Securities registered under such Mandatory Shelf Registration Statement
have been sold The Company shall notify the SS Holders when the Mandatory Shelf
Registration Statement has been declared effective.
. (b) Demand Registration.
(i) If the Company is not eligible to use Form S-3 on the Effective Date and
does not become eligible to use Form. S-3 on or prior to December 31,2010, then at any
time commencing on January 1, 2011, the Majority SS Holders may request registration
under the Securities Act of their Registrable Securities (a ''Demand Registration'') on
Form S-l( or such other form as the Company is then eligible to use). The request for a
Demand Registration shall be in writing and shall specify the number of Registrable
Securities requested to be registered and the intended method of distribution. Within five
Business Days after receipt of any request for a Demand Registration, the Company shall
given written notice of such requested registration to all other SS Holders and, subject to
Section 3.2(e). shall include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within 15
Business Days after receipt of the Company's notice, it being understood that any request
for inclusion under this Section 3.2(b) shall not be deemed a Demand Registration.
(il) Following receipt of such a request for a Demand Registration, the
Company shall file the requested registration statement (such registration statement,
including the Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto and all
material incorporated by reference or deemed to be incorporated by reference, if any, in
such registration statement, the "Demand Registration Statement''}with the Commission
as promptly as practicable, but in any event no later than 45 days after the date such
request for a Demand Registration is made, and shall use its commercially reasonable
6
2646
efforts to cause the Demand Registration Statement to be declared effective under the
Securities Act as promptly as practicable thereafter (but in no event later than 120 days
after the filing thereof). The Company shall use its commercially reasonable efforts to
keep the Demand Registration.Statement continuously effective under the Securities Act
until such time as aU of the Registrable Securities registered under such Demand
Registration Statement have been sold. The Company shall notify each of the Selling
Holders in such registration when the Demand Registration Statement has been declared
effective.
(iii) The Company shall not be obligated to effect more than two Demand
Registrations hereunder. A request for Demand Registration shall be deemed to have
been effected for purposes of this Section 3.2(b) if the registration statement relating to.
such Demand Registration has been declared effective by the Commission and, subject to
Section 3.2(c). remains effective for a period of not less than 365 days; provided.
however. that if the Majority Selling Holders request that the Company withdraw the .
registration statement relating to such Demand Registration Statement prior to it being
declared effective by the Commission, or if the Majority Selling Holders revoke such
Demand Registration prior to the initial filing of the Demand Registration Statement
relating to such Demand Registration (any such request or revocation, a "Withdrawal"),
none of such Selling Holders shall be entitled to make a subsequent Demand Registration
prior to the six-month anniversary of such Withdrawal.
(c) Postponement The Company shall be entitled to postpone for up to 60
days the filing of any Mandatory Shelf Registration Statement or Demand Registration Statement
otherwise required to be prepared and filed pursuant to this Section 3.2 if the Board of Directors
of the Company deterniines, in its good faith reasonable judgment, that such registration and the
Transfer of Subject Stock contemplated thereby would materially and adversely interfere with, or
would require disclosure of material, non-public information not otherwise required to be
disclosed under applicable law relating to, any material transaction or other material event that is
being contemplated by the Company and the Company promptly gives the Selling Holders in
such registration written notice of such determination; provided. however. that the Company
shall not be entitled to pos1pone pursuant to this Section 3.2(c) the filing of any Mandatory Shelf
Registration Statement or Demand Registration Statement otherwise required to be prepared and
filed pursuant to this Section 3.2 more than two times or for more than 90 days in the aggregate
during any twelve-month period.
(d) Selection of Underwriters. If any registration pursuant to this Section 3.2
involves an underwritten offering (whether on a ''firm,''''bestefforts'' or "all reasonable efforts"
basis or otherwise), or an agented offering, the Majority Selling Holders shall have the right to
select the underwriter or underwriters and manager or managers to administer such underwritten
offering or the placement agent or agents for such agented offering; provided. however, that each
Person so selected shall be reasonably acceptable to the Company.
(e) Inclusion in Underwritten Offering. If the managing underwriter or
underwriters, if any, shall advise the Company in writing (with a copy to each Selling Holder)
that, in its opinion, the amount of Subject Stock requested to be included in any registration
pursuant to this Section 3.2 would materially adversely affect such offering, or the timing thereof,
then the Company will include in such registration, to the extent of the amount and class which
7
2647
the Company is so advised can be sold without such material adverse effect in such offering: first,
the Registrable Securities requested to be included in such registration by Selling Holders
pursuant to this Section 3.2, on a pro rata basis based on the total number of such shares requested
to be included; and second, all other securities requested to be included in such registration.
3.3. Registration Procedures. Whenever required under Section 3.2 hereof to
effect the registration of any Registrable Securities, the Company shall:
( a) prepare and file with the Commission a Registration Statement with
respect to such Registrable Securities and use the Company's commercially reasonable efforts to
cause such Registration Statement to become effective, which Registration Statement shall
comply as to form. in all material respects with the requirements of the Securities Act; provided,
however, that before filing a Registration Statement or Prospectus or any amendments or
supplements thereto, including documents incorporated by reference after the initial filing of the
registration statement and prior to effectiveness thereof, the Company shall furnish to the Selling
Holders and a single counsel for the Selling Holders (selected by the Majority Selling Holders)
copies of all such documents in the form substantially as proposed to be filed with the
Commission at least five Business Days prior to filing for review and comment by such counsel;
and the Company shall provide to the Selling Holders and such counsel, within three Business
Days of receipt by the Company or its counsel, copies of any material correspondence with or
from the Commission or its staff with respect to a RegistrationStatement;
(b) prepare and file with the Commission such amendments and supplements to
such Registration Statement and the Prospectus used in connection with such Registration
Statement as may be necessary to comply with the provisions of the Securities Act and rules
thereunder with respect to the disposition of all securities covered by such Registration Statement;
( c) if during any period in which such Registration Statement is effective any
event or development occurs as a result of which such Registration Statement or Prospectus
contains an untrue statement of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the circumstances in which
they were made, not misleading, promptly notify each Selling Holder thereof, amend the
Registration Statement or supplement the Prospectus so that each will thereafter comply with the
Securities Act and furnish to each Selling Holder of Registrable Securities such amended or
supplemented Registration Statement or Prospectus, which each such Selling Holder shall
thereafter use in the disposition of Registrable Securities covered by such Registration Statement;
(d) furnish to each Selling Holder of Registrable Securities, without charge,
such numbers of copies of the Registration Statement, any pre-effective or post-effective
amendment thereto, the Prospectus and any amendments or supplements thereto, in each case in
conformity with the requirements of the Securities Act, and such other related documents as any
such Selling Holder may reasonably request in order to facilitate the disposition of Registrable
Securities owned by such Selling Holder;
(e) use the Company's commercially reasonable efforts to register or qualify
the securities covered by such Registration Statement under such other securities or "blue sky"
. laws of such states or jurisdictions as shall be reasonably requested by any Selling Holder and do
~ y and all other reasonable acts and things which may be necessary or reasonably advisable to
8
2648
enable each Selling Holder to consummate the disposition in such states or jurisdictions of the
Registrable Securities owned by such Selling Holder; provided, however, that the Company shall
not be required in connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such state or jurisdiction;
(f) in the event of any underwritten or agented offering, enter into and
perform the Company's obligations under an underwriting or agency agreement (including
indemnification and contribution obligations of underwriters or agents), in usual and customary
form, with the managing underwriter or underwriters of or agents for such offering, and
. cooperate with the Majority Selling Holders and the managing underwriter for such offering in
the marketing of the Subject Stock, including making available the Company's officers,
accountants, counsel, premises, books and records for such purpose;
(g) promptly notify each Selling Holder of any stop order issued or threatened
in writing to be issued by the Commission in connection therewith (and take all reasonable
actions required to prevent the entry of such stop order or to remove it if entered);
(h) make generally available to the Company's security holders copies of all
periodic reports, proxy statements and other information referred to in Section 3.9(a) hereof and
an earnings statement satisfying the provisions of Section 11 (a) of the Securities Act no later
than 90 days following the end of the twelve-month period beginning with the flfSt month of the
Company's first fiscal quarter commencing after the effective date of each Registration
Statement filed pursuant to this Article 3;
(i) make available for inspection by any Selling Holder, any underwriter
participating in such offering and the representatives of such Selling Holder and underwriter (but
not more than one fmn of counsel to such Selling Holders) all financial and other information as
shall be reasonably requested by them, and provide each Selling Holder, any underwriter
participating in such offering and tJie representatives of such Selling Holder and underwriter the
opportunity to discuss the business affairs of the Company with its principal executives and
independent public accountants who have certified the audited financial statements included in
such Registration Statement, in each case as necessary to enable them to exercise their due
diligence responsibility under the Securities Act; provided, however, that information that the
Company determines, in good faith, to be confidential and which the Company advises such
Person in writing, is confidential shall not be disclosed unless such Person signs a confidentiality
agreement reasonably satisfactory to the Company, or the related Selling Holder of Registrable
Securities agrees to be responsible for such Person's breach of confidentiality on terms
reasonably satisfactory to the Company;
0) use its commercially reasonable efforts to obtain "comfort letters" from its
independent public accountants, dated as of the effective date of such Registration Statement and
as of the date of the closing under any applicable underwriting agreement, and legal opinions of
counsel to the Company dated as of the date of the closing under any applicable underwriting
agreement, in each case addressed to the Selling Holders and the underwriters, ifany, in
customary form and covering such matters of the type customarily covered by such letters and
opinions, and in a form that shall be reasonably satisfactory to the Majority Selling Holders; and
furnish to each Selling Holder a signed counterpart of any such comfort letter or legal opinion;
9
2649
. (k) provide and cause to be maintained a 1ransfer agent and registrar for all
Registrable Securities covered by such Registration Statement from and after a date not later than
the effective date of such Regis1ration Statement;
(1) use its commercially reasonable efforts to cause the Registrable Securities
covered by such Registration Statement (i) to be listed or includedon any stock exchange on
which the Common Stock is then listed and (il) to be registered with or approved by such other
United States or state governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the Selling Holders of Registrable Securities
to consummate the disposition of such Registrable Securities;
(m) in connection with any Transfer of Registrable Securities that will result in
the securities being delivered no longer constituting Registrable Securities, cooperate with the
Selling Holders and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing the Registrable Securities to be sold, which certificates shall
not bear any transfer restriction legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as the Selling Holders or the managing underwriters,
if any, may reasonably request at least three Business Days prior to any sale of such Registrable
Securities;
(n) otherwise use its commercially reasonable efforts to comply with all
applicable rules and regulations of the Commission, including preparing and filing in a timely
manner documents and reports required by the Exchange Act; and
(0) take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities covered by such Registration Statement
3.4. Se11ing Holders' Obligations. No Holder shall use any "free writing
prospectus" (as such term is defined in Rule 405 promulgated under the Securities Act) in
connection with the sale of Regis1:ra;ble Securities without the prior written consent of the
Company, such consent not to be unreasonably withheld, conditioned or delayed. It shall be a
condition precedent to the obligations of the Company to take any action pursuant to this Article 3
with respect to the Registrable Securities of any Selling Holder that such Selling Holder shall:
(a) furnish to the Company such information regarding such Selling Holder,
the number of Registrable Securities owned by it and the intended method of disposition of such
Registrable Securities as shall be required to effect the registration of such Registrable Securities,
and to cooperate with the Company in preparing such registration;
(b) agree to sell its Registrable Securities to the underwriters, if any, at the
same price and on substantially the same terms and conditions as the Company or the other
Persons on whose behalf the Registration Statement is being filed have agreed to sell their
securities, and to execute any underwriting agreement agreed to by the Company.
3.5. Suspension of Sales. If the Company determines faith that a
. Registration Statement, Prospectus or any amendment or supplement thereto contains or may
. contain an untrue statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the in which
10
2650
they were made, not misleading, then, upon receipt of written notice from the Company to such
effect, each Holder shall promptly discontinue disposition of Registrable Securities until such
Holder has received copies of an amended or supplemented Registration Statement or
Prospectus, or until such Holder is advised in writing by the Company that the use of such
Registration Statement, Prospectus, amendment or supplement may be resumed (which notice
shall be given by the Company promptly following the time such Registration Statement or
Prospectus has been amended or supplemented or otherwise no longer contains or may contain
an untrue statement of a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances in which they
were made, not misleading), and, if so directed by the Company, such Holder shall deliver to the
Company (at the Company's,expense) all copies, other than permanent file copies then in such
Holder'S possession, of such Registration Statement, Prospectus, amendment or supplement
covering such Registrable Securities current at the time of receipt of such notice. The number of
days that any such suspension or suspensions may be in effect shall not exceed more than 60
consecutive days or more than an aggregate of 90 days in any twelve-month period.
3.6. Expenses of Registration. All expenses incident to the Company's
performance of or compliance with this Article 3, including, without limitation, all registration
and filing fees (including the fees of the Financial Industry Regulatory Authority, or any
successor thereto, and the Commission's registration fees), fees of any transfer agent and
registrar, fees and expenses of compliance with securities or blue sky laws, printing expenses,
reasonable "road show" or other marketing expenses, fees and disbursements of counsel for the
Company, fees and expenses of the Company's independent public accountants (including the
fees and expenses of any comfort letters required by or incident to the performance and
compliance with this Article 3), fees and expenses of underwriters (excluding discounts and
commissions attributable to the Registrable Securities included in such registration), the
Company's internal expenses, the expenses and fees for listing the securities to be registered on
each stock exchange on which the Common Stock is then listed and the reasonable fees and
disbursements, in an aggregate amount not to exceed $50,000, of one firm of counsel for the
Selling Holders of Registrable Securities, shall be borne by the Company; provideg, however,
that the Selling Holders shall bear their own underwriting discounts or commissions, selling or
placement agent or broker fees and commissions and transfer taxes, if any, in connection with
the sales of securities by such Selling Holders, pro rata on the basis of the aggregate offering or
sale price of all Registrable Securities registered in the applicable registration; further provideg,
that the Company shall not be required to pay for any expenses of any Demand Registration if
such Demand Registration is subsequently withdrawn at the request of the Majority Selling
Holders (in which case the Selling Holders shall bear such expenses, on the basis agreed upon by
such Selling Holders), unless SS Holders whose Registrable Securities constitute a majority of
the Registrable Securities then outstanding agree that such withdrawn Demand Registration shall
constitute the exercise of one of the two Demand Registrations under Section 3.2(b)(iii) hereof.
3.7. Indemnification: Contribution. If any Registrable Securities are included
in a Registration Statement under this Article 3:
(a) To the extent permitted by applicable law, the Company shall indemnify
and hold harmless each Selling Holder, each Person, if any, who controls such Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and
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2651
each officer, director, partner and employee of such Selling Holder or such controlling Person
against any and all losses, claims, damages, liabilities and expenses Goint or several), including
reasonable attorneys' fees and disbursements and expenses of investigation, incurred by such
Person pursuant to any action, suit, proceeding or investigation, or to which any of the foregoing
Persons may become subject under the Securities Act, the Exchange Act or other federal or state
securities laws, insofar as such losses,. claiins, damages, liabilities and expenses arise out of or are
based upon any of the following statements, omissions or violations (collectively, a "Violation"):
(i) any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement .or the related Prospectus, including any
amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading; or
(iii) anyviolation or alleged violation by the Company of the Securities Act,
the Act, any applicable state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any applicable state securities law;
provided. however, that the Company shall not be liable in any such case for any such loss,
claim, damage, liability Of expense to the extent that it is determined by a court of competent
jurisdiction to have arisen out of or be based upon (x) a Violation which occurred in reliance
upon and in conformity with written information furiri.shed to the Company by the party seeking
indemnification under this Section 3.7(a) expressly for use in connection with such registration
or (y) the failure of the party seeking under this Section 3.7(a) to deliver a copy
of the relevant current Prospectus or any or supplements thereto after the Company
has furnished such party, or any underwriter, with copies of the same in advance of the time of
first offer or sale; further provided, that the indemnification required by this Section 3.7(a) shall
not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if
such settlement is effected without the consent of the Company, which consent shall not be
unreasonably withheld, conditioned or delayed. The Company shall also indemnify any
underwriters, selling brokers, dealer managers and similar securities industry professionals
participating in such distribution, their officers, directors, agents and employees and each person
who controls such persons (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) to the same extent as provided above with respect to the indemnification of
the Selling Holders.
(b) To the extent permitted by applicable law, each Selling Holder shall
indemnify and hold harmless the Company, each of its directors, each of its officers who shall
have signed any Registration Statement and each Person, if any, who controls the Company
(within the meaning of Section 15 of the Securities Act or Section 20 of the ExchangeAct)
against any and all losses, claims, damages, liabilities and expenses Goint and several), including
reasonable attorneys' fees and disbursements and expenses of investigation, incurred by such
Person pursuant.to any action, suit, proceeding or investigation, or to which any of the foregoing
Persons may otherwise become subject under the Securities Act, the Exchange Act or other
federal or state securities laws, insofar as such losses, claims, damages, liabilities and expenses
arise out of or are based upon a Violation that occurred in reliance upon and in coDformity with
12
2652
written information furnished by such Selling Holder expressly for use in connection with such
registration; provided, however, that (i) the indemnification required by this Section 3.7(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage, liability or expense if
settlement is effected without the consent of the relevant Selling Holder, which consent shall not
be unreasonably withheld, conditioned or delayed; and (ii) in no event shall the amount of any
indemnity under this Section 3.7Q: exceed the net proceeds from the applicable offering
received by such Selling Holder.
(c) Promptly after receipt by an indemnified party under this Section 3.7 of
notice of the commencement of any action, suit, proceeding or investigation, or any threat
thereof made in writing, for which such indemnified party may make a claim under this Section
3.7, such indemnified party shall deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to participate in and, to
the extent the indemnifying party so desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its own counsel, with
the reasonable fees and disbursements and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time following the commencement
of any such action shall not relieve such indemnifying party of any liability to the indemnified
party under this Section 3.7 except to the extent that such failure has materially adversely
affected the indemnifying party's ability to defend such action. Any fees and expenses incurred
by the indemnified party (including any fees and expenses incurred in connection with
investigating or preparing to defend such action or proceeding) shall be paid to the indemnified
party, as incurred, within 30 days of written notice thereofto the indemnifying party. Any such
indemnified party shall have the right to employ separate counsel in any such action, claim or
proceeding and to participate in the defense thereof, but the fees and expenses of such counsel
shall be the expenses of such indemnified party unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party shall have failed to promptly assume the
defense of such action, claim or proceeding or (iii) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such indemnified party and the
indemnifying party, and such indemnified party shall have been advised by counsel that there
may be one or more legal defenses available to it which are different from or in addition to those
available to the indemnifying party and that the assertion of such defenses would create a
contlict of interest such that counsel employed by the indemnifying party could not faithfully
represent the indemnified party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume the defense of such
action, claim or proceeding on behalf of such indemnified party, it being understood, however, .
that the indemnifying party shall not, in connection with anyone such action, claim or
proceeding or separate but substantially similar or related actions, claims or proceedings in the
same jurisdiction arising out of the same general allegations or circumstances, be liable for the
. reasonable fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all such indemnified parties). No indemnifying party
shall be liable to anindemnified party for any settlement of any action, proceeding or claim
13
2653
without the written consent of the indemnifying party, which consent shall not be unreasonably
withheld, conditioned or delayed
(d) Contribution.
(i) If the indemnification required by this Section 3.7 from the indemnifying
party is unavailable to an indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses referred to in this Section 3.7, the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified parties in connection with the actions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and indemnified
. party shall be determined by reference to, among other things, whether any Violation has
been committed by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such Violation. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses referred to above shall
be deemed to include, subject to the limitations set forth in Section 3.7(a) and Section
3.7(b), any legal or ~ t h e r fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 3.7(d) were determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to in Section 3.7(d)(i) hereof. No Person guilty of fraudulent
misrepresentation (within the meaning of Section ll(f) of the Securities Act) shall be
entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(e) If indemnification is available under this Section 3.7, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in this Section 3.7
without regard to the relative fault of such indemnifying party or indemnified party or any other
equitable consideration referred to in Section 3.7(d) hereof.
(f) The indemnification required by this Section 3.7 shall be made by periodic
payments of the amount thereof during the course of the investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred.
(g) The obligations of the Company and the Selling Holders of Registrable
Securities under this Section 3.7 shall survive the completion of any offering of Registrable
Securities pursuant toa Registration Statement under this Article 3.
3.8. Holdback. Each SS Holder entitled pursuant to this Article 3 to have
Registrable Securities included in a Registration Statement prepared pursuant to this Article 3, if
so requested by the managing underwriter in connection with an underwritten or agented
registration of any Registrable Securities, shall not effect any public sale or distribution of shares
14
2654
of Common Stock, Convertible Securities or Stock Purchase Rights (excluding any sale pursuant
to Rule 144 or Rule 144A promulgated under the Securities Act and any sale as part of such
underwritten or agented registration), during the five Business Days prior to, or during the 90-
day period beginning on, the date such Registration Statement is declared effective under the
Securities Act by the Commission; provided that such SS Holder is timely notified of such
effective date in writing by the Company or such managing underwriter.
3.9. Additional Covenants of the Company.
(a) With a view to making available the benefits of certain rules and regulations
of the Commission that may permit the sale of the Registrable Securities to the public without
registration, the Company agrees to, so, long as any Holder owns any Registrable Securities:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144( c) promulgated under the Securities Act;
(ii) use its commercially reasonable efforts to file with the Commission in a
timely manner all reports and other documents required to be ftled by the Company under
the Securities Act and the Exchange Act; and
(iii) furnish to any Holder promptly upon request a written statement by the
Company as to its compliance in all material respects with the reporting requirements of
Rule 144 promulgated under the Securities Act and of the Exchange Act, a copy of the
most recent annual or quarterly report of the Company, and such other reports and
documents. of the Company, and take such reasonable further actions consistent with this
Section 3.9, as such Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing such Holder to sell any such Registrable Securities
without registration.
(b) The Company shall not effect any public sale or distribution of any shares
of Common Stock, Convertible Securities or Stock Purchase Rights (other than on Form S-4,
Form S-8, or any successor forms to such forms) during the five Business Days prior to, or
during the 90-day period beginning on, the commencement of a public distribution of Registrable
Securities pursuant to any Registration Statement prepared pursuant to this Article 3.
(c) The Company shall not, directly or indirectly: (i) enter into any merger,
consolidation or reorganization in which the Company shall not be the surviving corporation or
(ii) Transfer or agree to Transfer all or substantially all the Company's assets, unless prior to
such merger, consolidation, reorganization or asset Transfer, the surviving corporation or the
Transferee, respectively, shall have agreed in writing to assume the obligations of the Company
under this Agreement, and for that purpose references hereunder to "Registrable Securities" shall
be deemed to include the securities that the SS Holders would be entitled to receive in exchange
for Registrable Securities pursuant to any such merger, consolidation or reorganization.
(d) The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the SS Holders in this Article 3 or grant
any additional registration rights to any Person or with respect to any securities, in each case, that
are prior in right to or inconsistent with the rights granted in this Agreement.
15
2655
ARTICLE 4
MISCELLANEOUS
4.1. Term. This Agreement shall commenceon the Effective Date and shall
terminate on the earlier of (a) the date on which all of the Subject Shares have ceased to be
Registrable Securities or (b) the third anniversary of the Effective Date; provided. however, that
the provisions of Section 3.7 hereof and of this Article 4 shall survive such termination.
4.2. Amendment and Waiver. This Agreement may be modified or amended,
and the provisions hereof may be waived, only with the written consent of the Company and any
Holder against whom enforcement of such modification, amendment or waiver is sought. No
course of dealing or any delay or failure to exercise any right hereunder on the part of the
Company or any Holder shall operate as a waiver of such right or otherwise prejudice the rights,
powers or remedies of such Person.
4.3. Notice Generally_ Any notice, demand, request, consent, approval,
declaration, delivery or communication hereunder to be made pursuant to the provisions of this
Agreement shall be sufficiently given or made if in writing and either delivered in person with
receipt acknowledged or sent by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) if to any Holder, at its last known address appearing on the books of the
Company maintained for such purpose; and
(b) if to the Company, at the Designated Office;
or at such other address as may be substituted by notice given as herein provided. Every notice,
demand, request, consent, approval, declaration, delivery or other communication hereunder
shall be deemed to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, or three Business Days after the same shall have been deposited in
the United States mail, or one Business Day after the same shall have been delivered to Federal
Express or another overnight courier service.
4.4. Remedies. Each Holder of Subject Stock shall have all rights and
remedies set forth in this Agreement and all rights that such holders have under applicable law.
Any Holder of Subject Stock having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to exercise all other
rights granted by applicable law.
4.5. Successors and Assigns. Subject to the provisions of Sections 2.1 and 2.2,
this Agreement and the rights evidenced hereby shall inure to the benefit of and be binding upon
the successors of the Company and the permitted successors and assigns of the Holders. The
provisions of this Agreement are intended to be for the benefit of all Holders from time to time
of shares of Subject Stock, and shall be enforceable by any such Holder.
4.6. Severability. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law, but if any
16
2656
provision of this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
4.7. Headings. The headings used in this Agreement are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this Agreement.
4.8. Governing Law; Waiver of Jury Trial. This Agreement, and all disputes
between the parties under or relating to this Agreement or the facts and circumstances leading to
its execution, whether in contract, tort or otherwise, shall be construed and interpreted according
to the intemallaws of the State of Colorado, excluding any choice of law rule or principle that
may result in the application of the laws of another jurisdiction. The Company and each of the
Holders agree (a) to submit to the non-exclusive jurisdiction and venue of any United States
District Court located within the State of Colorado for any civil action, suit or proceeding arising
out of or relating to this Agreement or the transactions contemplated hereby, and (b) that notice
may be served upon the Company at the Designated Office and upon each Holder at the address
for such Holder set forth in the books of the Company maintained for such purpose. To the
extent permitted by applicable law, the Company and each of the Holder hereby unconditionally
waive trial by jury in any civil legal action or proceeding relating to this Agreement or the
transactions contemplated hereby.
[Remainder of page intentionally left blank; signature page follows.]
17
2657
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written above.
THE COMPANY:
UNITED WESTERN BANCORP, INC.
By: ______________________ _
Name:
Title:
LEGENT GROUP:
LEGENT GROUP, LLC
By: ______________________ _
Name:
Title:
[Signature Page t o ~ ~ t i o n Rights Agreement]
EXHIBIT 6.1
FORM OF
RELEASE
____ ---' 1010
TIllS RELEASE (this ''Release'') is being executed and delivered by __ ~ - - : - _ - :
(the ''Releasor''), in accordance with Section 6.2 of that certain Purchase Agreement, dated as of
June 9,2010 (the ''Purchase Agreement''), by and among UNITED WESTERN BANK., a federal
savings bank (''Buyer',), UNITED WESTERN BANCORP, INC., a Colorado corporation and
'the sole stockholder of Buyer (''Parent''), LEGENT GROUP, LLC, a Delaware limited liability
company ("Member''), and HENRY C. DUQUES, the controlling member of Member
("Dugues" and, together with Member, "Sellers"). Capitalized terms used but not otherwise
defined herein have the meanings ascribed to such terms in the Purchase Agreement.
The Releasor, for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound, in order to induce Buyer and Parent to
cons11IlJIDilte the transactions contemplated by the Purchase Agreement, hereby agrees as
follows:
1. Release.
(a) Except as otherwise set forth herein, the Releasor, on its own behalf and
on behalf of its successors, Affiliates and assigns, without the necessity of any further
action on the part of any such successor, Affiliate or assign, hereby knowingly,
voluntarily and irrevocably, and after being counseled by its legal representatives, fully
and completely releases and forever discharges Legent Clearing, LLC, a Delaware
limited liability company.(''Legent''), and its past, present and future Affiliates (other
than Buyer and Parent), predecessors, successors and assigns, and their respective
directors, officers, managers, employees, agents and representatives (collectively, the
"Released Parties''), from all direct or indirect, vested or contingent, known or unknown
and suspected or unsuspected claims, demands, actions, causes, suits and damages
whatsoever, at law or in equity, in tort, contract or otherwise, that the Releasor or any of
its Affiliates, successors or assigns ever had or now has, for or by reason of any Law,
negotiation, contract, transaction, document, agreement, matter, cause or thing
whatsoever, in each case arising contemporaneously with or prior to the date hereof or
arising out of any matter, cause or event occurring contemporaneously with or prior to
the date hereof,including without limitation actions for breach of contract, fraud,
misrepresentation, interference, duress, prima facie tort, breach of fiduciary duty, usury,
partnership, joint venture or the ordinary, sole, contributory, comparative or concurrent
negligence of any Released Party (collectively, the "Released Claims''), including,
. without limitation, any Released Claims in any way based upon or arising out of or in
connection with or in any way related to (i) any rights to indemnification, contribution or
reimbursement from any Released Party, whether pursuant to their respective
organizational documents, contract or otherwise and whether or not relating to claims
pending on, or asserted after, the Closing; (il) any relationships, contracts, agreements or
arrangements of any kind by and betWeen the Releasor and any Released Party; (iii) any
76676.000001 EMF_US 30793946v3
2659
J
debt previously owed or owing to the Releasor by the Released Parties or any of them,
which debt is hereby acknowledged by the Releasor to be extinguished; or (iv) to the
extent the Releasor is an employee of any Released Party, the Releasor's employment
with such Released Party, including without limitation claims based on Title VII of the
federal Civil Rights Act of 1964, Section 1981 of the federal Civil Rights Act of 1866,
the federal Workforce Adjustment and Retraining Act, the federal Americans with
Disabilities Act, the Employee Retirement Income Security Act of 1974, the federal Age
Discrimination in Employment Act and/or corresponding state statutes; provided,
however, that notwithstanding the foregoing, the Releasor is not releasing: (A) its rights,
if any, under the Purchase Agreement or any of the related documents to be executed or
delivered by any party in connection with or pursuant to the Purchase Agreement, and the
same shall not be included in the Released Claims; or (B) any right of the Releasor to
receive wages, salaries, bonuses and other benefits with respect to se,rvices provided to
Legent prior to the date of this Release.
(b) To the maximum extent permitted by law, the Releasor expressly waives
any rights it may have under any Law to the effect that a general release does not extend
to claims which the Releasor does not know or suspect to exist in its favor at the time of
executing this Release, which if known by the Releasor must have materially affected .
such settlement with the Released Parties.
(c) The Releasor represents and warrants that (i) the agreements and
obligations of the Releasor contained in this Release represent the legal, valid and
binding obligations of the Releasor; (ii) it has read carefully and fully understands the
nature and content of this Release, and has agreed to this Release knowingly and
voluntarily and in the absence of any fraud, mistake, duress, coercion or undue influence;
(iii) it has been advised to obtain, and has had reasonable opportunity to obtain, counsel
from its legal representatives prior to executing and delivering this Release; (iv) it
understands that this Release may be pleaded as a full and complete defense and may be
used as a basis for an injunction against any action, suit or other proceeding which may
be instituted in breach of the provisions of this Release; and (v) ithas not assigned or
otherwise transferred any right to any Released Claim in connection with the subject
matter of this Release, and it is the sole owner of any and all Released Claims relating to
the Releasor.
(d) The Releasor acknowledges that (i) the execution and delivery of this
Release by the Releasor is a condition to Buyer's and Parent's obligations to consummate
the transactions contemplated by the Purchase Agreement; (ii) Buyer and Parent are
relying on this Release in consummating the Purchase Agreement; and (iii) the. Releasor
will directly and indirectly benefit from the consummation of the transactions
contemplated by the Purchase Agreement.
(e) The Releasor hereby irrevocably covenants and agrees never to assert any
Released Claim against any Released Party in any proceeding before any tribunal, public
or private. .
76676.000001 EMF_US 30793946vl
2660
(t) It is the intention of the Releasor that the foregoing be construed broadly
as a total and unconditional release and covenant by the Releasor never to assert any
Released Claim.
2. Invalidity. If any clause, sentence, section or paragraph of this Release is
judicially or administratively declared invalid, unenforceable or void under applicable Law, such
decision shall not have the effect of invalidating or voiding the remainder of this Release, and the
Releasor agrees that the part or parts of this Release so held to be invalid, unenforceable or void
shall be deemed to be replaced by a valid and enforceable clause, sentence, section or paragraph
as close as possible to the purpose and intent of the part held to be invalid, unenforceable or void
and the remainder shall have the same force and effect as if such invalid, unenforceable or void
part or parts had never been included herein. .
3. Modification. This Release may not be changed except in a writing signed by the
Person(s) against whose interest such change shall operate.
4. Governing Law. This Release, and all disputes between the parties under or
relating to this Release or the facts and circumstances leading to its execution, whether in
contract, tort or otherwise, will be governed by and construed and interpreted in accordance with
the substantive laws of the State of Delaware, without giving effect to any conflicts of law rule or .
principle that might result in the application of the laws of another jurisdiction.
5. Counterparts. This Release may be executed in one or more counterparts
(including, without limitation, by facsimile or portable document format (PDF, each of which
shall be deemed an original, but all of which together shall constitute one and the same
instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
76676.000001 EMF_US 30793946vl
2661
IN WITNESS WHEREOF, the undersigned has executed and delivered,. or caused to be
executed and delivered, this Release as of the date first written above.
THE RELEASOR:
[
By:
Name:
Title:
[Signature Page to Release]
2662
]
EXHIBIT 8.1m
FORM OF
CLOSING CERTIFICATE OF MEMBER
____ --' 2010
Reference is made to that certain Purchase Agreement, dated as of June 9, 2010 (the
"Purchase Agreement"), by and among UNITED WESTERN BANK, a federal savings bank
("Buyer"), UNITED WESTERN BANCORP, INC., a Colorado corporation and the sole
stockholder of Buyer ("Parent"), LEGENT GROUP, LLC, a Delaware limited liability company
("Member"), and HENRY C. DUQUES, the controlling member of Member ("Duques" and,
together with Member, "Sellers"). Capitalized terms used but not otherwise defined herein have
the meanings ascribed to such terms in the Purchase Agreement.
In connection with the Closing under the Purchase Agreement, the undersigned hereby
certifies to Buyer and Parent on behalf of Member, and not individually, as follows:
1. I am the duly qualified and acting President of Member. I am authorized to
execute this Certificate on behalf of Member.
2. No Material Adverse Effect has occurred since the date of the Purchase
Agreement.
3. The representations and warranties of Sellers contained in the Fundamental Reps
and the representations and warranties of Member contained in Sections 3.29, 3.30 and 3.31 of
the Purchase Agreement are true and correct in all respects as of the date hereof with the same
force and effect as if made at and as of the date hereof, except (a) to the extent such
representations and warranties speak. as of a specified earlier date, in which case they remain true
and correct as of such date; and (b) as otherwise contemplated or permitted by the Purchase
Agreement.
4. Each other representation and warranty of Member contained in Article 3 of the
Purchase Agreement is true and correct in all material respects as of the date hereof with the
same force and effect as if made at and as of the date hereof, except (a) to the extent such
representations and warranties speak. as of a specified earlier date, in which case they remain true
and correct as of such date; and (b) as otherwise contemplated or permitted by the Purchase
Agreement; provided, however, that for purposes of this certification, any qualifications relating
to materiality,including the term "Material Adverse Effect," contained in any such
representation or warranty shall be disregarded and given no effect.
5. Member has in all material respects performed all obligations and complied with
all covenants necessary to be performed or complied with by it on or before the date hereof,
including, without limitation, the delivery of all items required to be delivered pursuant to
Section 8.1 of the Purchase Agreement.
6. Sellers have obtained all consents set forth in Schedule 3.4 to the Purchase
Agreement.
76676.000001 EMF_US 307770S6v2
2663
7. Member has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of an investment in the Subject Shares.
8. Member is able to bear the economic risks of an investment in the Subject Shares
and could afford a complete loss of such investment.
9. Member has been afforded the opportunity to ask questions and receive answers
concerning its investment in the Subject Shares and to obtain any additional information Parent
possesses or can acquire without unreasonable effort or expense that is necessary to verify the
accuracy of the information provided or made available to Member concerning its investment in
the Subject Shares.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
76676.000001 EMF_US 30777056vl
2664
IN WITNESS WHEREOF, the undersigned has executed and delivered this Closing
Certificate on bebalf of Member as of the date first written above.
76676.000001 EMF_US 30777OS6vl
LEGENT GROUP, LLC
By:
Name: Henry C. Duques
Title: President
[Signature Page to Closing Certificate ofMmn1?er1
2665
EXHIBIT 8.1(g)
FORM OF
CLOSING CERTIFICATE OF DUQUES
____ -,2010.
Reference is made to that certain Purchase Agreement, dated as of June 9, 2010 (the
"Purchase Agreement"), by and among UNITED WESTERN B ~ a federal savings bank
("Buyer"), UNITED WESTERN BANCORP, INC., a Colorado corporation and the sole
stockholder of Buyer ("Parent"), LEGENT GROUP, LLC, a Delaware limited liability company
("Member"), and HENRY C. DUQUES, the controlling member of Member ("Dugues" and,
together with Member, "Sellers"). Capitalized terms used but not otherwise defined herein have
the meanings ascribed to such terms in the Purchase Agreement. '
In connection with the Closing under the Purchase Agreement, the undersigned hereby
certifies as follows:
1. The representations and warranties of Sellers contained in the Fundamental Reps
are true and correct in all respects as of the date hereof with the same force and effect as if made
at and as of the date hereof, except (a) to the extent such representations and warranties speak. as
of a specified earlier date, in which case they remain true and correct as of such date; and (b) as
otherwise contemplated or permitted by the Purchase Agreement.
2. I have in all material respects performed all obligations and complied with all
covenants necessary to be performed or complied with by me on or before the date hereof,
including, without limitation, the delivery of all items required to be delivered by me pursuant to
Section 8.1 of the Purchase Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
76676.000001 EMF_US 30802764v2
2666
IN WITNESS .WHEREOF, the undersigned has executed and delivered this Closing
Certificate as of the date first written above.
HENRY C. DUQUES
[Signature Page to Closing Certificate ofDuques]
76676.000001 EMF_US 30802764vl . 2667
EXHIBIT 8.l(d)
FORM OF
OPINION OF PARENT'S IN-HOUSE COUNSEL
Mr. Theodore J. Abariotes, Deputy General Counsel of Parent, shall give the following
opinions (subject to reasonable customary qualifications and limitations):
1. Parent is validly existing as a corporation in good standing under the laws
of the state of Colorado.
2. Parent has the corporate power and authority to issue and deliver the
Subject Shares in accordance with the terms of the Purchase Agreement.
3. The issuance and delivery of the Subject Shares in accordance with the
terms of the Purchase Agreement have been duly authorized by the board of directors of Parent,
and no other or further corporate action on the part of Parent, its board of directors or its
stockholders is necessary therefor.
4. The Subject Shares, when: issued in accordance with the terms of the
Purchase Agreement, will be validly issued, fully paid and non-assessable.
S. Based in part upon the certificate being provided by Member at the
Closing pursuant to Section 8.1(f) of the Purchase Agreement, the issuance of the Subject Shares.
in accordance with the terms of the Purchase Agreement is exempt from the registration
requirements of the Securities Act of 1933, as amended.
2668
EXHIBIT 8.1(0
FORM OF
CLOSING CERTIFICATE OF BUYER AND PARENT
____
Reference is made to that certain Purchase Agreement, dated as of June 9, 2010 (the
Agreement"), by and among UNITED WESTERN BANK, a federal savings bank:
("Buyer"), UNITED WESTERNBANCORP, INC., a Colorado corporation and the sole
stockholder of Buyer ("Parent''), LEGENT GROUP, LLC, a Delaware limited liability company
(''Member''), and HENRY C. DUQUES, the controlling member of Member ("Duques" and,
together with Member, "Sellers''). Capitalized terms used but not otherwise defined herein have
the meanings ascn"bed to such terms in the Purchase Agreement.
In connection with the Closing under the Purchase Agreement, the undersigned hereby
certifies to Member and Duques on behalf of [Buyer] [parent], and not individually, as follows:
1. I am the duly qualified and acting President of [Buyer][Parent]. I am authorized
to execute this Certificate on behalf of [Buyer] [parent].
2. The representations and warranties of [Buyer][parent] contained in [Section 4.1
["Corporate"], Section 4.2 ["Authorization; Validity'1, Section 4.3 [''No Brokers or Finders"]
and Section 4.6 [''Financing'']] [OR]f Section 5.1 ["Corporate'1, Section 5.2 ["Authorization;
Validity"], Section 5.3 ["No Brokers or Firiders"] and Section S.S ["Subject Shares"]] of the
Purchase Agreement are true and correct in all respects as of the date hereof with the same force
and effect as if made at and as of the date hereof, except (a) to the extent such representations
and wmanties speak as of a specified earlier date, in which case they remain true and correct as
of such date; and (b) as otherwise contemplated or permitted by the Purchase Agreement.
3. EaCh other representation and warranty of [Buyer][parent] contained in
Article f4JlSJ of the Purchase Agreement is true and correct in all material respects as of the date
hereof with the same force and effect as if made at and as of the date hereof, except (a) to the
extent such representations and warranties speak as of a specified earlier date, in which case they
remain true and correct as of such date; and (b) as otherwise contemplated or permitted by the
Purchase Agreement.
4. . [Buyer] [parent] has in all material respects performed all obligations and
complied with all covenants necessary to be performed or complied with by it on or before the
date hereof, including, without limitation, the delivery of all items required to be delivered by it
pursuant to Section 8.2 of the Purchase Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFf BLANK]
76676.000001 EMF_US 30789622v2
2669
IN WTINESS WHEREOF, the undersigned has executed and delivered this Closing
Certificate on behalf of [Buyer) [parent1 as of the date first written above.
UNITED WESTERN [BANK] [ BANCORP, INC.)
By:
Name:
Title: President
[Signature Page to Closing Certificate of (Buyer) [Parent)]
76676.000001 EMF_US 30789622vl 2670
B
2671
EXlDBITB
OTS Chief Counsel Opinion
-
2672
Dear
Office of Thrift Supervision
Department of the Treasury .
1700 G Street, N. W., Washington. DC 20SS2 (202) 9066372
November 28,2006
Re: Permissibility of Securities Clearing Activities and Paying
Interest on Free Credit Balances
John E. Bowman
Chie/Counsel
This responds to your request in connection wi'Qt the application and notice to establish an
operating subsidiary filed by . .,' (Association) with the Office
of Thrift Supervision (OTS). The operating subsidiary would be a registered broker-dealer, and
would not be a depository institution. You request legal determinations concerning two issues.
First, you seek OTS's concurrence that certain securities clearing and related activities are
permissible activities for a federal savings association and, therefore, would also be permissible
for the Association's operating subsidiary. Second, you seek a determination, based on the facts
you have presented, ~ t a provision of federal law prohibiting federal savings associations from
paying interest on demand accounts would not bar the Association's operating subsidiary from
paying interest on its customers' free credit balances.
We conclude that the securities clearing and related activities described in your request are
permissible activities for a federal ,savings association and, therefore, the ,Association's operating
subsidiary would be able to engage in the same permissible activities. We also conclude that the
law probibiting federal savings associations from paying interest on demand accounts would not
preclude the Association's operating subsidiary from paying interest on its customers' free credit
balances.
I. Background
You have provided the following information. The Association is a subsidiary of
.. " (Holding Company).' (LLC), a
wholly owned, indirect subsidiary of Holding Company, is a securities clearing fIrm. LLC'is a
broker-dealer registered with the Securities and Exchange Commission (SEC) and is a member
of the National Association of Securities Dealers, the New York Stock Exchange, and several
exchanges.
1
LLC is a clearing member of the National Securities Clearing Corporation (NSCC),
I These include the NASDAQ Stock Exchange, the National Stock Exchange, the International Securities Exchange,
the Pacific Stock Exchange, and the Philadelphia Stock Exchange.
2673
2
Depository Trust Company (DTC), and the Options Clearing Corporation. As a clearing broker-
dealer, LLC provides a variety of securities clearing and related services to affiliated and non-
affiIiateti:Jntroducing broker-dealers and their brokerage customers. These services include:
(i) clearance and settlement services as agent for broker-dealer customers, and not as principal;2
(ii) custodial services, such as receipt, custody, and delivery of brokerage customers' securities
and funds; (iii) margin lending, i, e" making loans to brokerage customers to fmance their
securities purchases; (iv) order flow, t.e., at the direction of introducing broker-dealers, delivery
of trade orders to specific market centers for execution; and (v) recordkeeping. LLC also
engages in activities related to the foregoing that clearing broker-dealers often perform, including
securities lending to fund brokerage customers' margin loans.
3
stock borrowing,
4
and conduit
securities lending.
5
. . .
You represent that LLC does not engage in securities dealing, market making, or
underwriting activities, and does not purchase or sell securities when acting in a principal
capacity, except for certain securities purchases that are incidental to its sepurities clearing
activities.
6
You also represent that LLC neither provides investment advice to its customers,
nor is it a registered investment adviser under the Investment Advisers Act of 1940.
7
LLC's primary sources of revenue are clearing revenue derived from transaction charges
to introducing broker-dealers to compensate LLC for its custodial, and
routing services; interest revenue from margin lending; and activity-based fees charged by LLC
to its introducing broker-dealers for services provided to theircustomers.
8
Approximately 98%
1 The specific clearing services consist of comparing and confuming with counterparties the identity and quantity of
securities traded, the transaction price and date. and the identity of the buyer and seller. The settlement services
invo Ive LLC. as a member of a clearinghouse. fulfilling trade ob ligations by paying for securities purchased or
delivering securities sold. .. .
3 According to your request, in a typical transaction, LLC lends shares to another financial institution, receives cash
as collateral for those shares, and pays interest on the funds received.
4 In stock bolT owing, LLC borrows stock from another broker-dealer, provides cash collateral for those shares, and
receives interest 9n the cash it provides. LLC "typically bOlTows stock to fund a customer's short sale and uses the
proceeds of the short sale as cash collateral for the .stock bolTow."
5 In conduit securities lending, LLC "acts as an intermediary, typically between two other broker-dealers, one
wishing to borrow securities, and the other willing to lend" and LLC ''typically captures a spread in the transaction,
representing the difference in rebate rates paid on each side of me transaction."
6 As described in your request, these incidental purchases include purchases to make customers whole in failed
trades; correction of error and fraud; purchases of essentially worthless securities in customer accounts to reduce
third.party custodial charges; liquidation of margin accounts; and purchases or sales in certairt securities lending
transactions.
7 15 U.S.C, SOb et seq. (West 1991 & Supp. 2006).
8 These services include confirmations; statements; wire processing; margin calls; check writing; account transfers;
account maintenance; new account processing; and brokerassisted trades.
2674
-
3
of LLC's clearing, interest, and other revenue is from its affiliated broker-dealers and their
customers.
For a variety of business reasons, the Association wishes to establish LLC as an operating
subsidiary (OpSub-LLC) of the Association. You indicate that the Association and its parent
companies have identified several financial benefits for the Association, and potentially for
LLC's brokerage customers, that would result from reorganizing and having LLC become an
operating subsidiary of the Association.
9
However, because an operating subsidiary may only
engage in activities that are permissible for a federal savings association, you ask whether LLC
may continue its current activities, as described above, if it becomes OpSub-LLC, an operating
subsidiary of the Association. In other words, maya federal savings association engage directly
in the activities that LLC currently conducts, including serving as a member of a clearing
exchange?
You also seek our concurrence that following the proposed reorganization, 5(b)(1)(B)(i)
of the Home Owners' Loan Act (HOLA), 10 which prohibits a federal savings association from
paying interest on a demand account, would not apply to OpSub-LLC or to free credit balances
held by OpSub-LLC. so that it may continue LLC's current practice of paying interest on
customers' free credit balances. I I .
n. Discussion
A. Permissibility of Clearing and Settlement Activities
Under OTS regulations, an operating subsidiary-may engage in allY activity that its parent
federal savings association may conduct directly. 12 Accordingly, the relevant inquiry here is
whether the activities proposed for OpSubMLLC, and that are currently being conducted by LLC
as described above, are permissible for a federal savings association. Federal savings
associations have authority to engage in a broad range of securities activities, based on either
express authority under the HOLA or the wellMestablished doctrine of incidental powers.
Most of the brokerage activities are customary for a federal savings association that
provides securities brokerage or similar services. 13 We have not considered whether serving as a
9 You indicate that some of these benefits include reduced operating expenses, reduced cost of funds to the
Association, and improved customer service. You also suggest that the Association may have an improved capital
position and increased earnings when the Association and OpSub-LLC are consolidated for financial reporting
purposes.
10 12 U.S.C. 1464(b)(I)(B)(i)(West 200l).
II You define the term "free credit balances" to mean "funds in customers' brokerage accounts
that are not swept into [Association] sweep deposit accounts or money market mutual funds that are held by [LLC)."
1212 C.F.R. 559.3(e)(l)(2006).
13 See. e.g., NASD Rule 3230, which lists the responsibilities of introducing and clearing brokers.
2675
4
clearing broker with membership in a clearinghouse is permissible for a federal savings
association, however.
The activities proposed for OpSub-LLC are customary for a clearing broker. Clearing
and introducing brokers that work together divide tberesponsibilities of a broker between them.
While a clearing broker performs "back office functions" with respect to securities transactions,
the introducing broker performs the "front office functions." The introducing broker opens,
approves, and monitors customer accounts and later accepts orders and executes transactions.
The back office functions of the clearing broker include credit extension; recordkeeping; receipt
and delivery offunds and securities; safeguarding offunds and securities; and confirmations and
statements.
14
A clearing broker extends credit when it substitutes its credit for that of its
customers and becomes liable to a clearinghouse for performance of contracts that it submits. It
assumes the risk of default with respect to the exchange, clearinghouse. and counterparties to the
trades. IS .
Express Powers
Section 5(c) of the HOLA expressly authorizes a federal savings association to "invest in.
sell, or otherwise deal in" a wide range of securities, such as government securities and
mortgage-backed securities.
16
The OTS's implementing regulation
17
clarifies that section 5(c)
authorizes a federal savings association to provide brokerage or warehousing services for all
loans and investments'allowed under Section 5(C).18 This express authority includes the power to
sell and deal in asset-backed securities where the underlying assets are those in which federal
savings associations are authorized to originate, purchase, or invest. 19 In addition, we addressed
some aspects of retail securities brokerage by operating subsidiaries of federal savings
14 SEC Release No. 34-49879, at n.289 (Regulation B: Proposed Rule), 69 Fed, Register 39,682, 39712n.289
(2004), citing National Association of Securities Dealers Rule 3230, "Clearing Agreements," and New York Stock
Exchange Rule 382, "Carrying Agreements" (another term for "clearing agreements").
IS See, B.g., NASD Rule 3230; Henry R. Minnerop, Clearing A"angemenu, 58 Bus. Law. 917 (May 2003).
16 12 U.S.C. 1464(c)(West 2001 & Supp. 2006). Other types of securities include securities issued or fully
guaranteed by the Federal National Mortgage Association, the Student Loan Marketing Association, the Government
National Mortgage Association, or any agency of the United States, Federal Home Loan Bank securities, state and
municipal securities, small business-related securities, and corporate debt securities. 12 U.S.C. 1464(c)1)(D),
(E), (F), (H), (S), & (2)(D).
17 In 1996 OTS reltlOved from its implementing regulation a prohibition against savings associations contractirig
with third parties for btokerage activities. OTS thus has permitted a federal savings association to engage in third
party brokerage (networking) arrangements that make securities brokerage services available to the association's
customers by a broker-dealer that leases space on the association's premises. See 61 Fed. Reg. 66,561, 66,568 and
66,570 (Dec. 18. 1996) (preamble).
18 See 12 C.F.R. 560.30 (2006). Like other insured depository institutions, a federal savings association may use
asset securitization to sell any type of loan that it originates or purchases. OTS Op. Chief Counsel P-2004-5, at 1
and n.l0 (Sept. 14,2(04). citing Interagency Guidance on Asset Securitization Activities (Dec, 13, 1999).
19 See OTS Op. Chief Counsel P-2004-5 (September 14,2004).
2676
s
associations in the Interagency Statement on Retail Sales o/Nondeposil Investment Products
(Interagency Statement) issued in 1994.
20
The authority offederal savings associations to
,provide securities brokerage and related services to customers is not of recent vintage?1
Most of the proposed related services are expressly permissible when provided outside
the context of securities brokerage, as well as when provided in connection with securities
brokerage. In fact, Congress has recognized that these services, in some circumstances, are core
banking services that both banks and savings associations provide to customers.
12
OTS fiduciary
regulations authorize federal savings associations to act in a variety of capacities that involve
securities, such as registrar of stocks and bonds and transfer agent.
23
Federal savings
associations have broad authority under Section S(c) of the HOLA to make a wide variety of
loans,24 and to borrow, subject to regulatory limitations.
2S
Margin lending, securities Conduit
lending, and lending and borrowing securities a,re permissible pursuant to this authority. 26
Moreover, federal savings associations have express authority to provide order flow and
ZO See Thrift Bulletin 23-2 (Feb. 22, 1994). The Board of Governors of the Federal Reserve System (FRB), Federal
Deposit Insurance Corporation (FDIC), the Office of the' Comptroller of the Currency (OCC), andOTS issued this
statement on February 15, 1994. The Interagency Statement requires disclosure to retail customers that securities
sold are not insured by the FDIC; are not deposits or other obligations of, or guaranteed by, a depository institution;
and are subject to investment risks. See also Joint Interpretations of the Interagency Statement, OTS Thrift Bulletin
23-3 (Oct. 13, 1995).
11 Guidance on securities lending has an even longer history. The FFIEC Supervisory Policy on Seaarities Lending,
issued in 1985, explained that our predecessor, the Federal Home Loan Bank Board, had already developed rules ,
and regulations (now obsolete) addressing securities lending for institutions that it superVised. See FFIEC
Supervisory Policy: Securities Lent/ing 8, attached to OCC Banking Issuance BC-I96 (May 7, 1985). citing 12
C.F.R. 545.49 and memoranda R 48 and T 34-5. One ofour current regulations, 12 C.F.R. 560.30 n.12 (2006),
supersedes the Federal Home Loan Bank Board regulations and governs securities lending bY federal savings
associations.
2l Congress recently enacted legislation that applies to savings associations the same exceptions as to banks ftom the
defmitions of "broker" and "dealer" under the Securities Exchange Act of 1934. See Financial Services Regulatory
Relief Actof2006. 401(a). Pub. L. No. 109-351, to be codified ai IS U.S.C. 78c(a)(6) (defining "bank" to
include savings association); IS U.S.C. 78c(a){4) & (5){definitions and "dealer"). These excepted
services include, among others, effecting securities transactions in a trust department, providing safekeeping and
custody services. and serving as custodian to pension and other benefit plans. IS U.S.C. 78c(a)(4).
23 12 C.F.R. 550.30 (2006). A federal savings association may also provide investment advice through a trust
department andexerc:ise investment discretion over customer Id. OpSub.LLC would not provide such
services, however.
24 See, e.g., 12 U.S.C. 1464(c)(2}(A){commercialloans), (c)(2)(B)(nonresidential real property loans);
(c)(2)(D)(c:onsumcr loans); (c)(l}(T) and (U)(credit card and educational loans, respectively); and
(c)(3){C)(c:onstruction loans for primary residences).
lSSee 12 C.F.R. 563.80.(2006).
'26 Margin and securities conduit lending would be permissible as either consumer lending. See 12
U.S.C. 1464(c){2)(A)(commerciallending} and (c)(2)(D)(consumer lending). See also 12 C.F.R. 563.80
(2006)(borrowing authority).
2677
6
recordkeeping services to both fiduciary and brokerage 27 and to act as custodian of
residential mortgage loans documents as part of mortgage servicing.
28
In addition, federal
savings associations have express statutory authority to issue passbooks. certificates, or other
evidence of deposit accounts, 29. all of which involve recordkeeping activities. Thus. many of the
activities proposed for OpSulrLLC are customary and permissible activities for a federal savings
association and. therefore, its operating subsidiary.
We therefore conclude that a federal savings association has express authority to provide:
(1) clearance and settlement services as agent for broker--dealer customers, and not as principal;
(2) custodial services, such as receipt;custody, and delivery of brokerage customers' securities
and funds; (3) margin lending, i.e., making loans to brokerage customers to finance their
securities purchases; (4) order flow, i.e., at the direction of introducing broker-dealers, delivery
of trade orders to specific market for execution; and (5) recordkeeping, with respect to .
any type of securities.in which a federal savings association may invest pursuant to section 5( c)
of the HOlA. A federal savings ass<>,?iation also has express authority to provide services related
to the foregoing that clearing broker-dealeri often perform, including securities lending to fund
brokerage customers' margin loans, stock borrowing, and conduit securities lending.
We have not previously explicitly addressed the authority of a federal savings association
to provide, as agent, brokerage and clearing services with respect to types of securities that .
federal savings associations are not expressly authorized to invest in pursuant to section 5(c) of
the ROLA. Moreover, neither the HOLA nor our regulations provide express authority for a
federal savings association or its operating subsidiary to serve as a clearing member of a
clearinghouse or similar organization. However, our inquiry does not end here.
Incidental Powers
In addition to express statutory and regulatory authorizations, this Office bas recognized
that federal savings associations possess extensive powers that are incidental to the express
powers to federal savings associations by the HOLA.
30
These incidental powers provide
11 See 12 C.P.R. SSI.20{a) (2006). Seealso 12 C.F.R. 551.30 (requiring maintenance ofeffeclive systems of
records and controls regarding customers' securities transactions); 551.50 (specific recordkeeping requirements);
5S1.6O (how records must be maintained). See a/So12 C.P.R. Part 551, Subpart B "Content and Timing of Notice,"
including confirmations, Subpart C "Settlement of Securities Transactions,' and Subpart D ''Securities Trading
Policies and ProcedUres" (2006). Section 5(n) of the HOLA, 12 U.S.c. 1464(n), provides express authority to
federal savings associations to act as a fiduciary.
21 OTS Op.ChiefCouilsel (Jan. 31, 1994) (concluding that a federal savings association has express authority
pursuant to section 5(cX I XB) of the HOLA to act as custodian ofJoan documents for third parties).
29 t2U.S.C. 1464(b)(I)(ii).
30 OTS Ope Chief Counsel P-2004-5 (Sept. 14,2004); OTS Op. CbiefCounsel (Oct. 29,2001).
2678
-
7
a basis for our conclusions concerning providing clearing and related services in connection with
other types of securities, and service as a member of a clearinghouse.
We consider four factors to determine whether a particular activity lies within the scope
of an express power under section 5 oftbe HOLA. These include:
(1) is the activity consistent with Congressional purpose for federal
savings associations; (2) is the activity similar to, or does it
facilitate the conduct of. an activity already expressly authorized by
Congress; (3) does the activity relate to the financial intermediary
role that federal savings associations were intended to fulfill; and
(4) is the activity necessary for the federal savings association to
remain competitive ,and relevant in the modem economy?31
OTS bas determined that federal savings associations have incidental power to conduct
diverse securities and securities-related activities. These incidental powers include, for example,
conducting certain sweep arrangements,32 acting' as principal in certain interest rate hedges,33
providing ministerial support services as agent for a trust company/4 and purchasing Farmer Mac
common stock.
3S
A federal savings association has incidental power to offer escrow accounts
that do not relate to loans that it made.
36
,
OTS also has permitted a federal savings association to establish a foreign agency to
perform clearinghouse functions that would facilitate trust services provided by the federal
savings association to U.S.-based institutional trust customers. OTS permitted the agency to
provide global custody services, securities lending services solely on an agency basis,
safekeeping, custody, recordkeeping and other ministerial services while acting as a paying agent,
and custodial services for securities certificates.
37
These services are substantially similar to the
services that OpSub-LLC would provide, except that the agency did not become a member of a
clearinghouse.
31 See, e.g., OTS Op. Chief Counsel P-2004-5, supra note 30, at 4.
32 OTSOp. CbiefCounsel (Aug. 1,2000); OTS Op. Chief Counsel (March 2,1998).
33 OTS Op. Chief Counsel (Dec. 30,1999).
34 OTS Op. Chief Counsel (Oct. 17.1995).
35 OTS Op. Chief Counsel (Oct. 14, 1997).
36 See, e.g . OTS Op. Chief Counsel (Aug. 19, 1998) (commercial escrow accounts). Moreover, we have recognized
that certain activities and services, such as. serving as document custodian or providing escrow or recordkeeping
services, do not require OTS-conferred trust powers. See. e.g., id; OTS Op. Chief Counsel (Jan. 31, 1994)(escrow,
safekeeping, custodial, and similar services). See also 12 C.F.R. Part 550 (2006).
37 The agency acted as custodian of certificates of CEDEL, a depository organization located in Europe that allowed
its members to effect transfers of securities in book entry form. The agency also provided related services, such as
2679
-.
8
In addition, ministerial, non-discretionary support services "are permissible under a long
line of precedent recognizing that federal savings associations have incidental authority to
provide such services.',38 These correspondent services are services that the federal savings
association c'provides to others that the institution is authorized to generate in-house for itself in
the regular course ofbusiness.39 They typically include clearing checks, collecting debts,
participating in large loans, providing legal advice, assisting in building securities portfolios,
counseling as to personnel policies, training staff, helping with site selection, auditing, and
providing electronic data processing.
4O
OTS has not limited permissible correspondent services
to those on this list, but, for example, has permitted a federal savings association to provide
management and consulting sen:ices to foreign financial institutions.
41
Some of the services that OpSub-LLC would provide for customers are the types of
services that OpSub-LLC could perform for itself if it were engaging in the permissible activity
of buying and selling certain types of securities for its own account, subject to statutory and
regulatory limitations.
41
These include custody, order flow, and recordkeeping services. They are
authentication of certificates and clipping and presentation of coupons to the fiscal/paying agency for payment. OTS
Ope Chief Counsel 94-CC-09. at 4 (June 13, 1994).
The global custody services that OTS pennitted the agency to provide to broker/dealers, investment managers,
private institutions, and other members of the public included:
reporting to customers regarding their holdings of different types of currencies.
. analyzing and tracking of claims made to foreign nations for tax refunds; settling
customer instructions to purchase and sell securities; collecting dividend interest
and other sources of income on behalf of customers, and related processing
services; assisting customers in foreign exchange transactions; and providing
related recordkeeping. reporting and bookkeeping services.
Id at 2. OTS also pennitted the agency at times to provide settlement and intra-day and overnight overdrafts relating
to settlement of customer security transactions and to provide safekeeping of securities certificates for customers. Id
As agent for its customers, the agency loaned U.S. and foreign securities collateralized by U ~ S . dollars, letters of
credit, or U.S. govemment securities and assist with related recordkeeping and reporting. ld at 3.
38 See, e.g., OTS Ope Chief Counsel, supra note 34. at 3.
39 OTS Op. Chief Counsel, supra note 34, at 3 (citations omitted).
40 OTS Op. Chief Counsel. supra note 34, at 3, citing United Stales v. Citizens & Southern Nalional Bank. 422 U.S.
86, 115 (1975).
41 See OTS Op. Chief Counsel, at 9 (May 10, 1995) (advice regarding the internal procedures required to originate
poolsoflol!JJS supporting residential mortgage-backed securities). .
42 See, e.g., 12 U.S.C. 1464(c)(1)(C)(U.S. govemment securities), 1464(c)(1)(F) and (H)(other government and
state securities); 12 C.F.R. Part 560 (2006). An operating subsidiary ofa federal savings association may only
engage in activities that are permissible for a fedetal savings association. 12 C.F.a. 559.3(e)(I)(2006).
2680
-
9
correspondent services that are permissible incidental services, in addition to expressly
permissible services. .
To determine whether providing clearing services for transactions involving a wider range
of securities than those referenced in section 5(c) of the HOLA and whether membership as a
clearing member of a securities exchange are permissible as incidental activities, the first factor
that we consider is whether the activity is consistent with the Congressional purpose for federal
savings associations. In recent legislation, Congress accorded savings associations parity with
banks with respect to broker-dealer registration requirements.
43
Congress thereby evidenced its
belief that savings associations have the power to provide such services and that such power is
consistent with the purpose and role Congress envisioned for federal savings associaaoDs.
During the last several decades, Congress has amended the HOLA to expand the powers of
federal savings associations and enhance the ability of federal savings associations to meet the
needs of their retail and commercial customers, while strengthening the safety and soundness
framework within which associations these powers. The amendments granted or
expanded lending: or investment authority for additional consumer products, commereialloans,
commercial and nonresidential real estate loans, among others. Congress intended to
. provide federal savings aSsociations ''flexibility ... to improve the range of services [that] thrift
institutions may provide to their customers.'M . .
Providing clearing services for a broad range of securities, beyond those merely
referenced in section S(c) of the HOLA,45 is entirely consistent with the role envisioned for
federal savings associations. Performing clearing services would not involve holding or
underwriting securities. Therefore any associated risks would be similar to acting as agent in
performing <?ther activities. This activity therefore would be consistent with the Congressional
purpose offederal savings associations, as reflected in the recently enacted legislation. Similarly,
the authority to clear and settle securities transactions as a member of a clearinghouse is
consistent with the Congressional purpose to permit a federal savings association to
competitive and relevant. To do a federal savings association must be able to provide the full
range of services expected of a clearing broker. Granting federal savings associations parity with
respect to broker-dealer registration requirements is a clear expression of Congressional intent.
The second factor that we consider is whether serving as a clearing member of a
securities exchange is an activity that is similal to; or would facilitate the conduct of, an activity
already expressly authorized for federal savings associations. Section S(cXl) of the HOLA and
the ors' s implementing regulation provide that a federal savings association has authority to
43 Financial Services Regulatory Relief Act of2006, 40 1 (b), Pub. L. No. 109-351, (Oct. 13,2006). See nOle 22,
supra.
44 OTS Op. Chief Counsel P-98-9, at 4 (Aug. 19. 1998), quoting S. Cont: Rep. No. 641, 971b Cong., 2nd Sess. 87
(1982).
45 These securities are described in note 16. suprQ, and accompanying text
2681
-
10
provide brokerage services for all loans, investments, and securities allowed under Section S(C).46
LLC's ability to clear $ecuritiestransactions by virtue of being a clearing-member, and for a
wider range of securities than merely those authorized in section S( c) of the HOLA. clearly
facilitates securities brokerage, an activity expressly auth(;>rized for federal savings associations.
47
The third factor that we consider is whether the proposed clearing and settlement
services, including membership in a clearinghouse for securities transactions, would relate to the
financial intermediary role that federal savings associations were intended to fulfill. The role of a
financial intermediary is to facilitate the flow of money and credit among different parts of the
economy. It may do so through various means, such as receiving and transmitting funds,
borrowing from savers and lending to users, providing financial support for transactions, and
participatipg in the capital markets.
48
The proposed clearing and settlement services, as a
member of a clearinghouse, and fora wide range of securities, include extension of credit and
receipt and delivery of funds and securities. These services are integral to the role of the
financial intermediary.49 .
The- fourth and final factor that we consider is whether the clearing and settlement
services are necessary for a federal savings association to- r.emain competitive and relevant in the
modern economy. We observe thatthe Board ofGovemors of the Federal Reserve System
(FRB) by regulation pennits bank holding companies to provide clearing services on a securities
exchange "and incidental activities (including related securities credit activities and custodial
services), if the securities brokerage services are restricted to buying and selling securities solely
as agent for the account of customers and do not include securities underwriting or dealing. "so
Regulation Y also permits bank holding companies to provide clearing services for any futures
contracts and options on futures traded on exchanges subject to two
conditions: first. the activity is conducted through a separately incorporated subsidiary, which
may engage in other activities; and second, the bank holding company parent does not provide a
guarimtee or otherwise become liable to the exchange or clearing association other than for trades
conducted by the subsidiary for its own account or for the account of any affiliate.
51
46 See 12 U.S.C. 1464(c); 12 C.P.R. 560.30 (2006).
47 We note that with respectto clearing transactions involving securities not aUthorized in HOLA section S(c),
OpSub-LLC would not be making investments for itself or engaging in underwriting.
. 4& OTS Op. Chief Counsel P-98":9, at S (Aug. 19, 1998), ciling Auten v. United Nat 'I Bank, 174 U.S. 125,
143 (1899). Accord, OCC Interpretive Letter No. 1014, at 5 Jan. 10. 2005)(national banks may become netting
members of a clearing corporation, which includes participating in its loss allocation system, and may clear, net, and
settle U.S. government securities). -
49 See OCC Interpretive Letter No. 929, 5 (Feb. 11. 2002)(clearing and execution activities are consistent with role
of financial intermediaries.).
so Regulation Y. 12 C.P.R. 22S28(b)(7)(i) (2006).
51 12 C.P.R. 225.28(b)(7)(iv) (2006). In a major revision of its Regulation Yin 1997, the FRB determined that
permitting the bank holding company to guarantee proprietary trades 011 a commodities exchange is appropriate. It
also determined that it no longer would require review of tile rules ofa commodities exchange or clearinghouse
2682
..
11
National banks are authorized by statute to buy and sell securities upon the order, and for the
account of, their customers.
52
The Office of the Comptroller of the Currency (OCC) permits
. national banks and their operating subsidiaries to be clearing members of and
commodities exchanges if their potential liability can be limited. S3 In fact, the OCC determined
that nationalbanks may be clearing members of, and own stock iIlt DTC over 30 r,.ears ago, and
may be clearing members of the Options Clearing Corporation over 20 years ago. The OCC
has also rmutted national banks to clear and settle trades on the NSCC and own shares of the
NSCC.
5
The OCC has permitted national banks to participate in loss allocation schemes that operate
similarly to securities clearing houses if the banks can limit their potential liability. 56 The OCC
also has permitted national banks to be netting members in the Loss Allocation System of the
Government Securities Division (GSD) of the Fixed Income Clearing Corporation.
57
More .
recently, the OCC determined that a national bank may be a member of an Independent Systems
Operator (ISO), which operates a clearing market for electric power and related products, when
the loss allocation formula did not .place a cap on the non--<iefaulting memberS' potential.
liability.s8 To remain competitive in the modem economy, a federal savings association. like a
bank, requires authority to offer securities clearing services.
before a bank holding company became a member; instead, it would rely upon it$supervision of the risk
management systems of the bank holding company. See 62 Fed. Reg. 9290, 9309-1 I (l997).
52 12 U.S.C. 24 (Seventh) (West 200l).
53 See. e.g., OCC Interpretive Letter No. 929, at 5 n.26 (Feb. II, 2002).
54 See OCC 1nterpretive Letter No. 929. supra note 53, at 7(Options Clearing Corporation) citing OCC Interpretive
Letter No. 421 (March 14, 1988), reprinted in [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH)' 85,645
(citing an unpublisbed letter dated Dec. 19, 1975); OCC Interpretive Letter No. 372 (Nov. 7, 1986)(Options Clearing
Corporation).
55 OCC Interpretive Letter No. 929, supra note 53, at 7 (dictum).
56 The OCC approved an application that permitted a foreign branch of a national bank to join the London
Clearlnghou$C (LCH) as a SwapClear member to clear iJlterest derivative contracts, after finding that a member's
original default fund contribution served as a theoretical cap on contingent liability of a non-defaulting member of
LCH for the default of other members. See OCC Interpretive Letter 929, supra note 53, at 3.
57 See OCC Interpretive Letter No. 1014, supra note 48. at 5. GSD clears, nets, settles and manages risks for its
member firms (brokers, dealers, banks and other financial institution) arising from a broad range of U.S. government
" securities transactions. If GSD mutuaJizes Joss allocation obligations, a netting member may either payor tenninate
its membership .. If it terminates. its loss is limited to its required fimd deposit Id.
.5. OCC Interpretive No. 1071 (Sept. 6, 2006). The OCC's conclusion rested largely upon consideration of
steps to mitigate the risk of a default allocation assessment. Id. at 4-12.
2683
12
Whether the authority to engage in activities as a clearing member of a securities exchange
derives from express or inci4ental power, the activities present certain risks and potential
liabilities to a federal savings association. We will now discuss some of the protections we want
to see in place to insure OpSub-LLC's ability to control risks and liabilities. We consider, foi'
example, that a clearing member of an exchange is subJect to two types of liabilities, incidental
and contingent. The first type is liability to the exchanges or their clearinghouses for the
performance of the trades of customers accepted for clearance by the clearing member. The
clearing member must make payment or deliver securities to the exchange even if its customers
do not perform. This liability is the functional equivalent of an extension of credit by the
clearing broker to its customers, and the clearing broker may seek repayment from defaulting
customers. The second type of liability is a partial contingent liability for the obligations of all
other clearing members to the clearinghouse. The rules of most clearinghouses provide that,
should a clearing member default and its margin and capital (including all deposits made to the
clearinghouse's back-up or guaranty ftmds) be insufficient to cover its obligations, the
reach the guaranty fund deposits of all other clearing members, on a pro rata
basis.
s
The clearing member may then become liable for an additional contribution. A limit on
this 'second type of liability is concern.
6O
'
Offering securities clearing services as a clearing member of an exchange presents the risk
that,for a customer trade that it bas accepted, OpSub-LLC must make payment or deliver
securities to the clearinghouse even if its customer does not perform.. OpSub--LLC would
monitor the tinancw condition of its customers as part of its procedures ,to measure and monitor
risk, and the introducing brokers would institute procedures to ensure that the customers fulfill
their obligations.
61
Key to its ability to mitigate its risk, however, is the right of OpSub-LLC '
under its agreements with its introducing brokers to refuse prospectively accept a trade for any
reason. These agreements also authorize OpSub-LLC to reimburse itself for a loss on a margin
loan to a customer through an escrow account that it requires the introducing broker to maintain
with QpSub-LLC or through a d:eduction from money that OpSub-LLC owes the introducing
broker for commissions. Without a time limit, its affiliated introducing brokers have Ted to
indemnify OpSub-LLC for losses on margin loans made to their respective customers. We
conclude that OpSub-LLC would have ample means to control the risk that its clearing customers
do not perform.
The authority to offer clearing services presents the risk that OpSub-LLC may be
partially liable if another clearing member of the NSCC, DTC, or Options Clearing Corporation
59 See OCC Interpretive Letter No. 1071, supra note 58, at 4.
60 See OCC Interpretive Letter No. 929, supra note 53, at 4 & n.19.

61 The introducing brokers ,ould require most customers to have sufficient funds in their brokerage accounts to pay
for securities prior to placing the order with OpSub-LLC. In addition, the introducing brokers would require most
customers to pay for securities purchased prior to delivery or deliver securities to be sold prior to payment.
62 OpSub.LLC would not clear securities transactions for brokerdealers trading for their own accounts.
2684
13
defaults on its obligations to these clearinghouses.
63
Multiple factors mitigate OpSub-LLC's
exposure to liabilitY in the event of the default of another clearing member. The SEC and self-
regulatory organizations regulate these clearinghouses, which. in turn, regulate their members.
They would also act as functional regulators of OpSub.LLC.
You have represented that pursuant to the reorganization, OpSub-LLC would become a
member of only three clearinghouses of which LLC is currently a member. You have also
reviewed the rules of these clearinghouses and provided an analysis of the potential liability of
and factors that would limit this liability . Your analysis concludes that the
probability is low that any of these clearinghouses would assess OpSub-LLC for the default of
another member and thereby threaten the fmancial stability of the Association. Standard and
Poors has accorded all three clearinghouses "AAAn ratings. To date, you have discovered no
instances in which any of these clearinghouses assessed clearing members for the default of a
. clearing member rather than satisfy the liability from assets of the defaulting member or its
reserve funds. Furthermore, these clearinghouses are parties to a multicoOateral cross-sharing
agreement, which provides that if an individual member of multiple clearinghouses defaults on or
otherwise fails to meet its obligations, all collateral 'maintained by that individual member at
multiple clearinghouses would be applied to mitigate the loss caused by that member's default or
failure to satisfy its obligations.
In addition, the three clearinghouses would require OpSub-LLC to maintain deposits in
reserve funds in amounts that are relatively small compared to the total amount of deposits from
members that. they hold. These relatively small amounts are a reflection that, if an assessment
were necessary, OpSub-LLC's share of any liability would be relatively small ..
Furthermore, the proposal does not expose the Association to potential liability to the
clearinghouses. The Association's separately incorporated operating subsidiary would be a
clearing member, and neither the Association nor any of its affiliates would guarantee the
obligations ofOpSub-LLC to the clearinghouses.
Despite numerous factors that mitigate the likelihood that a clearinghouse would assess
OpSub-LLC for the default of another member, or that the Association would thereby suffer a
loss, we must consider the possibility. however unlikely, of catastrophic losses due to huge or
numerous defaults. To that end, we have reviewed your analysis of the rules of the three
clearinghouses and detennined that may limit its liability for the default of another
clearing member through termination of its memberships in the clearinghouses.
Within ten business days after an assessment by the NSCC, a member may notify the
NSCCofits decision to terminate its membership and thus limit its liability to the lesser of the
pro rata assessment or its required deposit in the reserve fund. If instead it pays the pro rata
assessment and replenishes its required deposit, it may be liable for one or more subsequent pro
rata assessments relating to the same loss or liability. The member may then limit its liability for
63 Neither the Association nor any other affiliate of OpSub-LLC has guaranteed the obligations of LLC to any
clearinghouse or exchange and do not contemplate providing a guarantee for OpSub-LLC's obligations.
2685
14
future assessments by providing notice of its termination of membership, but its liability would
be the greater of the required deposit in the reserve fund or all the pro rata assessments made
. prior to its notification to the NSCC of tennination of its membership.64 The NSCC also has an
addendum to its rules that sets forth its intention to apply at least 2S percent of its retained
earnings to cover any loss prior to imposing a pro rata assessment on nondefaulting members.
6s
This policy reduces OpSub-LLC's potential liability.
As a member of DTC, OpSub-LLC similarly could limit its obligations to OTC based on
the default of another clearing member by providing notice of termination of membership within
ten business days of a pro rata assessment. The rules of the DTC differ tram those of the NSCC,
in part because the OTC requires its members to pay into a reserve fund and purchase its
preferred stock. However, by giving notice within the ten-day period, the nondefaulting member
of DTC may limit its liability arising from the default of another member to the amount of its
required deposits and investment in stock ofDTC plus 100 percent of these amounts." .
The Options Clearing Corporation, like the NSCC and the OTC. permits a member to
limit its liability for losses of another defaulting member through termination of its meinbership
in the clearinghouse. The member can limit its liability to the amount of its required contribution
to a reserve plus 100 percent of that amount by providing notice of termination within five
business days of an 67 .
As the foregoing discussion denionstrates, the proposed clearing activities for a wide
range of securities and proposed clearing memberships in securities clearinghouses meet all
of the factors commonly considered in the incidental powers analysis. Accordingly, we conclude
that under the incidental powers doctrine a federal savings association may (i) provide securities
clearing and related services, including transactions involving securities beyond those in which
the association is authorized to invest by section 5(c) of the HOLA, and (ii) serve as a clearing
member of the NSCC, OTC, and Options Clearing Corporation. -Based on the representations
64 See NSCC Rule 4, 8, available at http://www.nscc.com!legal/nsccrules.pdf(Nov. 8,2006).
65 See Addendum E to NSCC Rules, supra note 64.
66 Like the NSCC rules, the DTC rules provide that if the nondefaulting member, instead of giving notice of
termination of membership within the ten-day period, pays the pro rata assessment and replenishes its required
deposit to the reserve fund, it would be liable for subsequent pro rata assessments relating to the same loss or liability
unless and until it provided notice of termination of membership. The member's maximum liability would then be
the greater of I) its required deposit to the reserve fund, plus 100 percent, or 2) all pro rata assessments made prior
to its notice of tennination of membership. See DTC Rule 4, available at
httjls:/llogin.dtcc.comldtcorglbinary/19021 DTCo/020RULESO/020-%206-S-06%20o/020Current.pdf (Nov. 8, 2006).
67 See Options Clearipg Corporation By-Laws, Article VIU, 6, available at
http://www.optionsclearjng.comlpublications/rules bylaws pdlocc bylaws.pdf(Nov. 8, 2006). After providing
notice of withdrawal. the member also may not submit any more transactions for clearance through the Options
Clearing Corporation and must close out or transfer all open positions that it has with the Options Clearing
Corporation. Id
2686
IS
and information you have provided. it appears that there are acceptable controls on any risks
associated with clearing memberships in securities clearinghouses.
B. Permissibility of Paying In.terest on Free Credit Balances
OTS regulations governing subordinate organizations provide that all federal statutes and
regulations apply to operating subsidiaries in the same manner as they apply to federal savings
associations, unless otherwise specifically provided by statute, regulation, or OTS policy.68
Section 5(b)(I)(B)(i) of the HOLA, a provision pertaining to prohibits a federal
savings association from paying interest on a demand account. !iI Pursuant to this provision, the
Association may not pay interest on a demand account. You inquire whether this prohibition
would apply to LLC after it becomes OpSub-LLC, a registered broker-dealer operating subsidiary
of the Association, or whether OpSub-LLC would be able to continue LLC's current practice of
paying interest on customers'free credit balances. You indicate that under SEC Rule 15c3-2,70
customers' free credit balances are required to be payable by LLC on demand.
71
For the reasons
set forth below, we conclude that the prohibition against paying interest on a demand account,
although applicable to the Association, not be to LLC after it becomes OpSub-
LLC. an operating subsidiary of the Association.
Our conclusion that 5(b)(l)(B)(i) of the HOLA would not prohibit OpSub-LLC from
paying interest on the free credit balances of customers is based on several factors. First, by its
terms, S(b)(l)(B) applies to "federal savings associations," which are federally insured.
depository institutions. The HOLA defines the term "savings association" to mean "a savings
association, as defmed in Section 1813 of[Title 12 U.S.C.], the deposits of which are insured by
the [Federal Deposit Insurance] Corporation" and the term "federal savings association" means
"a Federal savings association or a Federal savings bank chartered under section [5 of the
HOLA].72 Section 1813(b)(1) of Title 12 U.S.C. defines "savings association" to include "any
Federal savings association and any state savings association, and defines "Federal savings
association" to mean any Federal savings association or Federal savings bank chartered under 5
of the HOLA. There is no reference in any of these definitions to subsidiaries. Thus, it is only
by reason of the OTS' s subordinate. organizations regulations that a question even arises about
68 12 C.F.R. S59.3(h) (2006).
69 Section 5(b)(l)(B) of the HOLA, 12 U.S.C. 1464(b)(1)(B), provides "[aJ Federal savings association may not-
(i) pay interest on a demand account; .... "
70 17 C.F.R. 240.1 5c3-2 (2006).
71 You also represent that staff ofthe SEC "has informally advised [LLC] and the [Association] that the reservation
of the right to require prior notice of withdrawal or tran&fer, which is necessary in order for a bank account to qualifY
as a NOW or similar interestbearing transaction account, is inconsistent with SEC Rule 15c32."
n 12 U.S.C. 1462(4) and (5). See a/so 12 C.F.R. 561.43 (2006), the OTS regulation that defines "savings
association" to mean "a savings association as defined in section 3 of the Federal Deposit Insurance Act, the deposits
of which are insured by the [Federal Deposit Insurance] Corporation."
2687
16
. the applicability oftb.e S{B)(1)(bXi) prohibition to ali operating subsidiary ofa federal savings
association.
Second, a customer's free credit balance held by OpSub-LLC would not be a "demand
account" within the meaning of HOLA S(b)(I){B) and OTS regulations. Under the HOLA, a
"demand account" is a "demand depositaccount.",3 Under OTS regulations, a demand account
is defined as a non-interest bearing "demand deposit.,,74 OTS regulations define "account" to
mean a savings account, demand account, certificate account, or several other types of accounts,
whether in the form of a deposit or a share, held 1?y an "accountholder" in a savings
associatiOn."'S The term "accountholder" is defined as "the holder of an account or accounts in a
savings association insured by the Deposit Insurance Fum!' (DIF).'6 (Emphasis added.)
Previously, we have determined that, de-spite the prohibition on payment of interest on
commercial demand federal savings associations may sweep excess funds from their
deposit accounts into investments outside the association, such as government secmities
repurchase agreements and mutual funds.
71
- .
Based on your description, LLC is not, and OpSub-LLC will not be, a savings association
insured by the DIF. A customer of OpSub-LLC, introduced by an introducing broker, would not
be the holder of an account or accounts in a savings association insured by the DIF. Therefore,
such a customer would not be an "accountholder" under OTS regulations. Similarly, after
OpSub-LLC is established as an operating subsidiary of the Association, OpSub-LLC would not
be a DIF -insured savings association and would not have accountholders, i.e., the holders of
accounts in a DIP-insured Savings association, within the meaning ofOTS regulations. A
customer's free credit balance held by LLC-OpSub therefore would not be a "demand account"
within the meaning ofHOLA S(b)(l)(B). In our view, the statutory prohibition was not '
intended to reach funds that are held by an entity that is not a DIP-insured, depository institution.
Third, a free credit balance is not an insured deposit. The Fedetal Deposit Insurance Act
(FDIA),s defines an "insured deposit" as a ''net amount due to any depositor for deposits in an
73 Section S{b)(1 )(A) proVides that "[s]ubject to the terms ofits charter and regulations of the Director, a Federal
savings association may - (i) raise funds through such deposit, share, or other accounts, including demand deposit
account (hereafter in this section referred to as "accounts"); ... " 12 U.S.C. 1464{b)(J)(A).
74 12 C.F.R. 561.16 (2006).
75 12 C.F.R. 561.2 (2006). The HOLA does not define the term "account" as it is used in S(b)(l )(B). See 12
U.S.C. ]461 et seq.
76 12 C.F .R. 561.3 (2006) as amended by 7 t Fed. Reg. 19810-11 (April 18, 2006).
71 ors Op. ChiefCounse' P-98-J (March 2, 1998)(repurcbase agreements); OTS Op. Chief Counsel P-20oo10
(August 1, 2000)(mutual funds). A sweep arrangement from a deposit account to another account in a depository
institution is impennissible if the accounts are commercial demand accounts, however. See DrS Op. Chief Counsel
P-98-1 (March 2, 1998).
78 12 U.S.C. 1811 eueq.
2688
-
17 .
insured depository institution .... ,,79 Because OpSub-LLC would not be an insured depository
institution, the free credit balances that it holds would not be insured deposits under the FDIA.
Therefore, to the extent the prolu"bition on payment of interest on demand accounts is related to
federal deposit insurance, the 5(b Xl )(BXi) prohibition is inapposite.
We also note that, like LLC, after the proposed reorganization OpSub-LLC would be a
registered broker-dealer. Although it would be an operating subsidiary of the Association,
OpSub-LLC would be a functionally regulated entity, subject to the supervision,
and enforcement authority of the Securities and Exchange Commission (SEC) as its primary
regulator, as well as OTS.
80
Thus, SEC Rule lSc3-2 would apply to OpSub-LLC. This rule,
which requires that fimds arising out of any :free credit balances be payable on demand, 81 is
predicated upon the assumption that earnings on a free credit balance belong to the customer. If
these earnings are considered interest on a demand deposit, Rule lSc3-2 conflicts with HOLA's
prohibition on payment of interest on demand deposits.
Generally, OTS regulation SS9.3(h)(l) would require that a provision in HOLA apply to
OpSub-LLCin the same manner as it applies to feder'al savings associations unless otherwise
provided by statute. policy, or regulation. In this instance, even if HOLA's prohibition on
payment of interest on demand deposits applies to a broker-dealer operating subsidiary, .the
SEC's conflicting Rule lSc3-2 would provide that the HOLA prohibition would not apply ..
We note that similar prohibitions against paying interest on demand accounts exist with
respect to other types of depository institutions and that other federal.banking regulators have
construed such prohibitions in a manner that would not preclude the payment of interest on free
credit balances in accounts with affiliated broker-dealers.
82
OTS previously has followed
interpretations of the FRB and the FDIC regarding the prohibition of payment of interest on
demand accounts.13 Section 19(i) of the Federal Reserve Act prohibits member banks from
79 12 U.S.C. 1813(1) and (m).
80 See OTS Holding Companies Handbook Section 200, at 200.2 - 200.4. The Handbook, for example, identifies
registered broker-dealers as being regulated bytbe SEC and the NASD and establishes procedures for purposes of
regulatory coordination and communication when a functionally regulated entity is a subsidiary of a thrift.
81 See 17 C.P.R. 240. 1 Sc3-2 (2006). This rule provides that a broker-dealer may not use earnings on its
custQmer's free credit balance to operate its business unless, at least once every three months, it provides the
customer a written notice stating that the funds are not segregated and may be used to operate the brokerage
business. The written notice must also advise the customer that the funds are available upon demand. The rule
. applies unless the broker or dealer is a banking institution supervised and examined by state or federal authority
having supervision over banks. Here OpSub-LLC would not be a "banking institution;' however.
B2 Prohibitions that apply to banks are similar, but not identical, to the prohibition on payment of interest on demand
deposits by federal savings associations. In this regard, we note that other insured depository institutions may pay
interest on retail demand deposits. See 12 U.S.C. 371a (member banks); 12 U.S.C. 1828(g)(insured nonmember.
banks and insured branches of foreign banks).
13 See OTS Op. Chief Counsel, at 3 (May 29, 2003)(federaJ savings associations may provide reward points to
customers who use Visa U.S.A. Inc. debit cards to access demand deposit accounts); Memo. OTS Chief Counsel p.
2689
18
paying interest on demand deposits except for those held by individuals. 84 The FRB has defined
'interest" as "any payment to or for the account of any depositor as compensation for the use of
funds constituting a deposit." 8S For purposes of section 19(i), the FRB has adopted the
of "deposit" used in its Regulation D, Reserve Requirements of Depository
Institutions. 86 A "deposit," in pertinent part, therefore means:
The unpaid balance of money or its equivalent received or
held by a depository Institution in the usual course of business and
for which it has given or is obligated to give credit, either
conditionally or unconditionally, to an account, including interest
credited, or which is evidenced by an instrument on which the
depository institution is liable.
(emphasis added}.87 By regulation, the FRB has limited the prohibition on payment of interest on
commercial demand deposits to accounts held iI), depository institutions.
8a
The FRB's limitation of the prohibition to accOunts in depository institutions is evident in
its orders that permit nonbank subsidiaries of bank holding companies that are securities broker-
dealers to pay interest on credit balances., Without discussion of the prohibition of payment of
interest; the FRB determined that carrying customer credit balances awaiting investment and
paying interest on them are activities incidental to pennissible securities brokerage and thus
permissible for a broker-dealer subsidiary of a bank holding company.89
The ace filed a comment letter that strongly supported the FRB's' initial approval of
paying interest on credit balances of custOmers of a brokerage subsidiary of a bank holding
98-1 (March 2, . 1 998)(reviewing types of sweep accounts.that federal banking agencies determined did not violate
the prohibition on payment of interest on demand accounts).
84 See 12 U.S.C. 3711. see also 12 C.F.R. 217.3 (2006).
IS See 12 C.F.R. 217 .2( d} (2006)(Regulation Q) (2006). The definition also provides that "[a) member bank's
absorption of expenses incident to providing a normal banking function or its forbearance from charging a fee in
connection with sUch a service is not considered a payment of interest." ld Section 19(a) of the Federal Reserve
Act, 12 U.S.C. 461(a), authorizes the FRS to define tenns and prescribe regulations to implement section 19(i).
86 12 C.F.R. 217.2(b) (2006)(Regulation Q).
87 12 C.F.R. 204.2(a)(1) (2006)(Regulation D)
.. See 12 C.F.R. 204.2(a) and 217.2(b) (2006).
89 See, e.g., United Jersey Bania, 69 Federal Reserve Bulletin 565 n.6 (1983)(acquisition of discount broker Richard
Blackman & Co., which would pay interest on Some credit balances awaiting investment); BanKAmerica Corp., 69
Federal Reserve BuUetin 105, n.l J (I 983)(acquisition of discount broker Charles Schwab Corp" which would pay
interest on idle credit balances to be swept into an unaffiliated money market mutual fund or unaffiliated commercial
bank). The U.S. Supreme Court upheld the FRB's approval ofBankAmerica's acquisition of Charles Schwab
without discussion of the permissibility of payment of interest on credit balances. See Securities Industry Ass 'n v.
Board o/Governors a/the Federal Reserve System, 468 U.S. 207 (1984).
2690
19
company. The OCC advised that paying interest on customer balances arising from brokerage
transactions is incidental to permissible securities brokerage activities and "obviously a banking
that is "currently performed by commercial banks." The oec therefore urged the FRB
to determine that interest on these credit balances is Closely related to banking and a
proper incident thereto. 0
Several months after filing its comment letter urging the FRB' s approval of a bank
holding company's acquisition ofa broker-dealer, the oce approved a national bank's
establishment of an operating subsidiary that would conduct discount securities brokerage
activities. The OCC concluded, albeit in a context other than section 19(i), that credit balances
arising in connection with securities brokerage transactions are not deposits, and that a national
bank's discount brokerage operating subsidiary that maintains and pays interest on customer
credit balances would not be receiving deposits.
91
The OCC distinguished credit balances arising
incidentally to brokerage activities on functional and legal grounds from bank deposits, noting
that
[blank deposits are generally funds placed with a depository
institution for the primary purpose of safekeeping, earning a
return in the form of interest, or facilitating payments to third
parties. They may be withdrawn at the discretion of the depositor
under the terms and conditions of the account. The receipt of
deposits is a principal function of banks, which publicly solicit
deposits to provide funds to be used in the banks' lending business.
Credit balances maintained by brokers, on the other hand, arise in
connection with securities transactions of customers and, as such,
are not directly solicited from the public. Indeed, the Securities
Investor Protection Act, ... operates to restrict the advertising,
promotional and selling practices of brokers regarding interest-
bearing free credit balances .... Further, there are specific regulatory
restrictions regarding the use of credit balances by brokers.
Finally, the oce noted that the meaning of the term "deposit" may be different, depending upon
the statutory or regulatory context. 92
90 See OCC comment on BankAmerica Corp.'s Proposed Acquisition of Charles Schwab Corp., 1982 OCC QJ
LEXIS 1179 (June 10, 1982). The comment letter did not state whether the brokerage activities were conducted
directly in the banks and the resulting credit bidances held by the banks, rather than in operating subsidiaries. Id.
91 The OCC concluded that credit balances are not deposits within the meaning of the McFadden Act, and that
therefore the offices at which the discount brokerage would offer its services would not constitute "branches" under
the McFadden Act because none of the statutory branching functions - receiving deposits, paying checks, or lending
money - would be performed. Decision of the OCC on the Application by Security Pacific National Bank to
Establish an Operating Subsidiary to Be Known as Security Pacific Discount Brokerage Services, Inc., 1982 oce
QJ LEXIS 1287 (Aug. 26, 1982).
92 The oce stated "[e]ven assumingthat credit balances are treated as deposits for the narrow monetary control
purposes of Regulation D, however, it should be recognized that the meaning of deposit may be different in other
regulatory or statutory contexts, such as under the McFadden Act." Decision of the oce on the Application by
2691
20
. In the context of the prohibition of payment ofinterestoncommercial demand deposits,
both the OCC and FRB have distinguished between free credit balances in a secwities brokerage
account and deposits in a depository institution. The DCC's comment letter and the FRB's
subsequent approval of an application in 1983 thus indicate that the permissibility of payment of
interest on customer credit balances by brokerage affiliates of national banks and bank holding
companies is well established.
The permissibility of payment of interest on customer credit balances by brokerage
affiliates of nonmember, insured banks is also well established. Like section 19(i) of the Federal
Reserve Act and Regulation Q,93 the Federal Deposit Insurance Act and FDIC regulations impose
a prohibition on the payment of interest on commercial demand deposits in insured nonmember
banks. The Federal Deposit Insurance Act provides that exceptions to the prohibition shall be
made the same as exceptions to the prohibition applicable to member banks.!14
In responding to a bank's proposal to establish a sweep account for certain customers, the
FDIC indicated that such an account would not violate the FDIC regulation prohibiting state
nonmember banks ftom paying interest on demand deposits.
9S
The FDIC characterized the issue
as "whether the investment account, or the sweep accoUnt arrangement as a whole, violates the
prohibition on the payment of interest on demand deposits." Concluding that neither the
investment account nor the sweep arrangement violates the prohibition, the FDIC reasoned,
citing 1831 (1), that funds in the investment account do not constitute a demand deposit within the
meaning of FDIC regulation 329.1 because "deposit" refersto money or its equivalent
''received or held by a bank or a savings association." Since a'mutual fund is not a bank, funds in
. the investment account are not deposits under section 3(1) of the FDIA. In additiOD. the FDIC
concluded that earnings on the funds in the investment account are not "interest" within the
meaning of FDIC regulation 329. 1 (c) because the earnings are not "payment to or for the
account of any depositor as compensation for the use of funds constituting a deposit" and the
earnings are not paid by the bank. Thus, the FDIC. like the FRB and OCC, would not apply a
statutory prohibition on the payment of interest on demand deposits to the payment of interest
Security Pacific National Bank to Establish an Operating Subsidiary to Be Known as Security Pacific Discount
Brokerage Services, Inc . 1 !)82 OCC QJ LEXIS 1287 (Aug. 26. 1932).
93 12 U.S.C. 371a; 12 C.F.R. Part 217 (2006).
94 12 U.S.C. l828(g). See also 12 C.F.R. 329.2 (2006)(FDIC implementing regulation).
95 FDIC Advisory Opinion #00-2 (April 4,2002), available at http://wWw.fdic.gov/regulationsllawstrules/4000-
t 0040.htrnl (July 28, 2006). The sweep account would be linked with an investment account maintained at a money
market mutual fund operated by unaffiliated third parties; the bank would not own or operate the money market fund.
the FDIC distinguished its Advisory Opinion #92-21, in which it concluded that a sweep account violated the
prohibition of payment of interest on demand deposits: 1) in the earlier opinion the demand deposit account and
investment account were both in the bank; 2} the customer could automatically transfer funds between the two
accounts; and 3) the bank paid interest on the account that violated the prohibition. whereas in the sweep
arrangement at issue in Advisory Opinion #00-2, the Money Market Fund paid the customer earnings from the
fund's investments. Id. at n.l.
2692
21
from earnings on customers' free credit balances held in a broker-dealer subsidiary of an insured
depository institution. .
Conclusion
We conclude that federal savings associations may conduct the clearing activities
currently being conducted by LLC, as described in the Background section hereof. Accordingly,
after the reorganization, when LLC becomes OpSubLLC, an operating subsidiary of the
Association, OpSub-LLC may continue to conduct such clearing activities subject to supervisory
conditions established by the OTS's Southeast Regional Office. Further, we conclude that the
payment of interest on customers' free credit balances by OpSub-LLC would not violate the
HOLA 5(B)(1)(b)(i) prohibition against paying interest on demand accounts.
In reaching the foregoing conclusions, we have relied on the factual infonnation and
representations contained in the materials you submitted to us and in subsequent discussions with
OTS staff. Our conclusions necessarily depend upon the accuracy and completeness of such
information and representations. Any material difference in facts or circumstances from those
described herein could result in different conclusions.
If you have any questions regarding this matter, please contact Martha Vestal Clarke,
Counsel, at (202) 906-6087 or Vicki Hawkins-Jones, Special Counsel, at (202) 906-7034.
cc: Regional Directors
Regional-Counsel
2693
Sincerely,
/s/
John E. Bowman
Chief Counsel
c
2694
EXBlBITC
Financial Statements of the Bank as of and for the
three-month period enclina March 31, 2010
2695
Assets
Cash and due from banks
Interest-earning deposits
Total cash and cash equivalents
Investment securities-available for sale, at fair value
Investment securities-held to maturity
Loans held for sale-aUower of cost or fair value
Loans held for Investment
Allowance for credit losses
Loans held for Investment, net
FHLBank stock, at cost
Mortgage servicing rights, net
Accrued Interest receivable
Other receivables
Premises and equipment, net
Bank owned life insurance
Other assets, net
Income tax receivable
Deferred income taxes
Foreclosed real estate
Total assets
liabilities and shareholders' equity
liabilities:
Deposits
Custodial escrow balances
FHLBank borrowings, net
Borrowed money
Income tax payable
Other liabilities
Total liabilities
Shareholders' equity:
Common stock
Additional paid-in capital
Retained earnings
Accumulative other comprehensive (loss) income
Total shareholders' equity
Total liabilities and shareholders' equity
Difference
United Western Bank-Consolidated
Balance Sheet for SEC Reporting/BOD Summary
Balance Sheet - Current Period
For the Period from March 31, 2010 to March 31, 2010
(Amounts are In USD)
Balance
40,143,457.37
625,062,341.44
665,205,798.81
90,629,358.69
311,235,259.80
279,946,263.92
1,136,947,350.0
(41,613,901.29)
1,095,333,448.7
9,450,400.00
6,769,825.73
7,125,886.28
11,218,821.20
23,229,940.92
26,415,235.77
2,518,201.03
23,841,790.69
13,806,104.55
21,756,633.91
2,588,482,970.0
2,112,860,219.9
40,558,241.55
168,623,350.47
86,531,020.65
(0.02)
13,285,770.51
2,421,858,603.1
112,500.00
161,831,656.86
10,110,342.44
(5.430,132.34)
166,624,366.96
2,588,482,910.0
2696
July 9, 2010 9:36 AM
Page
LJuhl
Interest and dMdend Income:
Community bank loans
Resldentlalloans
Other loans
Investment securities
Deposits and dMdends
Totellnterest and dMdend Income
Interest expense:
Deposits
FHLBank borrowing
Other borrowed money
Total Interest expense
Net Interest Income before provision for credit losses
Provision for credit losses
Net interest Income after proviSion for credit losses
Noninterest income:
Loan administration
Galn on sale of loans held for sale
United Western Bank-Consolidated
Income Statement for SEC Reporting/BOD Summary
Income Statement
For the Period from January 1, 2010 to March 31, 2010
(Amounts are In USD)
Current Month Prior Month YTD
14,087,110.24 (46,440,493.88) 14,087,110.24
2,841,781.08 (11,109,161.33) 2,841,781.08
282,729.43 (828,753.86) 282,729.43
4,272,447.13 (18,406,069.59) 4,272,447.13
610,538.91 (413,427.02)
22,094,608.79 (n,197,905.68) 22,094,606.79
3,810,343.33 (10,707,539.36) 3,810,343.33
1,052,926.25 (7,928,143.25) 1,052,926.25
900,125.92 (2,779,388.66) 900,125.92
5,763,395.50 (21,415,071.27) 5,763,395.50
16,331,211.29 (55,782,834.41 ) 16,331,211.29
14,222,907.75 (17,837,340.61) 14,222,907.75
2,108,303.54 (37,945,493.80) 2,108,303.54
1,010,529.95 (3,267,567.42) 1,010,529.95
595,846.85 (1,852,527.18) 595,846.85
Gain (loss) on sale of available for sale Investment secu 46,980,074.20
Total othercthan-temporary Impairment losses (4,728,156.44) 2,215,443.30 (4,728,156.44)
Portion of loss recognized in OCI (before taxes) 451,242.03 (257,575.30) 451,242.03
Net impairment losses recognized in earnings (4,276,914.41 ) 1,957,868.00 (4,276,914.41)
Other
452,145.20 (1,947,329.68) 452,145.20
Total nonlnterest income
(2,218,392.41) 41,870,517 .92 (2,218,392.41)
Noninterest expense:
Compensation and employee benefits
4,670,472.05 (14,591,648.97) 4,670,472.05
Subaccountirig fees
7,033,980.43 (14,856,564.68) 7,033,980.43
Amortlzetlon of mortgage servicing rights
574,120.95 (1,949,543.69) 574,120.95
Lower of cost or fair value adjustment on loans HFS 556,341.08 16,033.96 556,341.08
Occupancy and equipment
760,485.48 (2,250,710.44) 760,485.48
Postage and communication
142,076.44 (431,907.89) 142,076.44
Professional fees
548,780.93 (2,193,707.94) 548,780.93
Mortgage selVicing rights subservlcing fee
316,766.59 (1,052,082.49) 316,766.59
Other general and administrative
7,364,582.56 (11,056,364.62) 7,364,582.56
Total noninterest expense
21,967,606.51 (48,366,496.76) 21,967,606.51
Income (loss) before Income taxes
(22,077,695.38) 52,291,520.88 (22,077;695.38)
Income tax (benefit) provision
(1,063,254.71) 20,783,572.91 (1,063,254.71 )
- Net Income (Loss)
(21,014,440.67) 31,507,947.97 (21,014,440.67)
2697
July 9, 2010 9:37 AM
Page
Wuhl
D
2698
CONFIDENTIAL EXHIBIT D.
Resolutions of the Board of Directors of the Bank and the Company
2699
. - ..... - - .. _--_ ................. -......... -_.-........ _-_._--_. __ .. _,-------
UNITED WESTERN BANK
SPECIAL BOARD OF DIRECTORS
AND SPECIAL COMMITTEE MEETING
June 3,2010
MINUTES
A special meeting of the Board of Directors (the "Board'') of United Western Bank (the "Bank")
was held at 11:00 a.m. at 700 Seventeenth Street, Suite 2100, Denver, Colorado 80202.
The following Directors were present and participating at the meeting in person, or
telephonically, which constituted a duly authorized quorum:
Mr. James R. Peoples
Mr. Guy A. Gibson
Dr. James H. Bullock
Mr. Charles J. Berling
Mr. Bernard Darre
Mr. Gary O. Petak
Mr. Benjamin C. Hirsh
Denver
Los Angeles
Las Cruces
. Denver
Denver
Denver
Denver
Also in attendance in person or telephonically were, Mr. Tom Kientz, Mr. Ted Abariotes, Mr.
Michael McCloskey, Mr. Bill Snider, Mr. Jeff Leeds,. Mr. Les Ravitz, Mr. Robert Slezak, Mr.
Michael. Stallings and Ms. Linda Selub, as well as Ron Levine of Davis, Graham & Stubbs, Peter
Bang ofKBW, and Allen McConnell and Bainbridge DeWeese of Hunton & Williams. Minutes
were taken by Linda Selub.
Mr. Peoples called the meeting to order, and Mr. Darre called the Legent Special Committee to
order.
Legent Transaction
Mr. Peoples asked Mr. Abariotes to summarize the Legent Purchase Agreement. Mr. Abariotes
reviewed the summary of Purchase Agreement which had been prepared for the Bank by counsel
and then submitted to the Special Committee (a copy of the Summary is attached as Exhibit "A").
Mr. Abariotes went over the terms of the Purchase Agreement, including the parties thereto,
pricing structure and contingencies, the escrow hold-back, and also reviewed the definition of
adjusted book value and how it is determined, reminding the Special Committee that Mr. Duques
is standing behind the fundamental representations and warranties, and that the covenants are
self-explanatory. Next, Mr. Abariotes discussed the indemnification provisions noting that these
provisions had taken a protracted period of negotiation, and that management and legal counsel
are all comfortable with the indemnification provisions, as well as with the litigation claims
previously discussed in detail with the Special Committee. Mr. Abariotes noted the closing
conditions set out in the Purchase Agreement, noting that in the event regulatory approval is not
obtained by November 30, 2010, we have the ability to terminate the agreement. Next Mr.
Abariotes reviewed the escrow agreement which provided for a $6 million escrow to be deposited
with the escrow agent at closing.
Mr. Darre asked Mr. Stallings to update the Special Committee regarding the acquisition
recommendation memorandum contemplating the downside scenario. Mr. Stallings reviewed the
revisions to pages 2-3 in the memo noting the changes made were to provide ,a worst case and
2700
._------------------_._------------_._-------
expected case scenario, and also the ramifications on the model with the Board and Special
Committee (the revised pages 2-3 of the memorandum are attached hereto as Exhibit "B").
The Board and Special Committee questioned Mr. Abariotes and Mr. Stallings at length about
various issues including calculation of pricing adjustment at closing, completion of disclosure
schedules, required vendor consents for material contracts particularly concerning technology
licensing. Mr. Abariotes advised that the disclosure schedules are nearly complete and reminded
the Special Committee that the signing of the Purchase Agreement would not take place absent
completed disclosure schedules.
KBW Fairness Qpinion
Next Mr. Peoples asked Mr. Peter Bang to review KBW's fairness opinion. Mr. Bang took the
Board through the KBW presentation (a copy of which is attached hereto as Exhibit "C") of the
analysis that KBW employed in coming to its conclusion concerning the fairness of the
transaction from a financial point of view. Members of the Board queried Mr. Bang in detail with
regard to the analysis presented and Mr. Bang responded in detail. At the conclusion of the
presentation, Mr. Bang stated that it was KBW's opinion that the transaction is fair to the
Company and the Bank.
The Board and the Special Committee then discussed the KBW presentation in greater detail with
the members of management present at the meeting, asking about the terminal multiples, the
valuation summary and comparables, and public disclosure of the transaction. Further discussion
ensued. At the conclusion of the discussion, upon motion made and seconded, the following
resolutions were unanimously approved:
WHEREAS, the Special Committee of the Board of Directors of the Bank, having been
created by the Board of Directors for the purposes of determining whether or not the Bank should
into a formal agreement with Legent Group, LLC to purchase the membership interest in Legent
Clearing, LLC, recommends to the Board of Directors of the Bank. that the Bank. purchase Legent
Clearing, LLC upon the terms and conditions provided in the Purchase Agreement reviewed and
discussed indetail at this meeting.
WHEREAS, the Board of Directors (''Board'') of United Western Bank (the "Bank" or
"Buyer") deems it fair, advisable and in the best interests of the Company to adopt and enter into
that certain Purchase Agreement (the "Purehase Agreement") by and among the Bank, United
Western Bancorp, Inc. ("Parenf,), Legent Group, LLC ("Legenf') and Henry C. Duques
(collectively with Legent, "SeHer"), pursuant to which the Legent is selling substantially all of its
assets to the Bank (the" Aequisition").
WHEREAS, the Board believes it is in the best interests of the Bank to execute the
Purchase Agreement and to authorize the Bank to take all actions necessary or appropriate to
deliver and perform its obligations under the Purchase Agreement and to cause the Bank to
consummate the transactions contemplated thereby, including the Acquisition.
-2-
2701
----_._-----------------------_._---._---_.---
NOW THEREFORE, BE IT:
Asset Purchase Agreement
RESOLVED, that the Board hereby consents to, approves, ratifies, confirms and
authorizes the Acquisition, upon the terms and conditions set forth in the Purchase Agreement,
and the various other documents, certificates, instruments and agreements contemplated by the
Purchase Agreement (all of such documents, certificates, instruments and agreements, including
the Purchase Agreement, being referred to as the "Purchase Agreement Related Documents"),
and all transactions contemplated therein are hereby authorized and approved in all respects and
for all purposes.
FURTHER RESOLVED, that James R. Peoples, Guy A. Gibson, Benjamin C. Hirsh
and Theodore 1. Abariotes, as officers of the Bank ("Officers") are hereby severally authorized,
empowered and directed, for, on behalf and in the name of the Bank, to make, execute, deliver
and perform the Purchase Agreement Related Documents, with such revisions in the terms and
provisions thereof as the executing Officer or Officers may, in his or their sole discretion, as
approved by the Company's Chief Operating Officer, deem necessary or desirable and in the best
interests of the Bank (his or their signatures being conclusive evidence that he or they did so
deem any such changes to be necessary or desirable and in the best interests of the Bank) and to
make, execute and deliver any and all further agreements, instruments, certificates and documents
and do and perform all additional acts which any or all of such Officers deem necessary or
appropriate to carry out the Acquisition and the intent of these resolutions.
FURTHER RESOLVED, that all previous action taken or agreements entered into by
any or all of the Officers or of the Bank on behalf of the Bank in negotiating or
carrying out the Acquisition into full force and effect are hereby ratified, confirmed, approved
and adopted as duly authorized acts of the Bank in all respects and for all purposes.
Miscellllneous
RESOLVED, that the Officers of the Bank, both before and after the time at which the
agreements referenced herein become effective, are hereby authorized, empowered and directed,
for, on behalf and in the name of the Bank, to do and perform or cause to be done and performed,
all other acts, to payor cause to be paid, on behalf of the Bank, all related costs and expenses and
to execute and deliver or cause to be executed and delivered such other notices, requests,
demands, directions, consents, approvals, orders, applications, agreements, instruments,
certificates, financing statements, continuation statements, acknowledgments, undertakings,
supplements, amendments, further assurances and other communications of any kind, in the name
of and on behalf of the Bank, as-he, she or they may deem necessary, advisable or appropriate to
effect the intent of the foregoing resolutions or to comply with the requirements of the
instruments approved and authorized by the foregoing resolutions.
FURTHER RESOLVED, that any acts of any Officer and of any person or persons
designated and authorized to act by any Officer, which acts would have been authorized by the
foregoing resolutions except that such acts were taken prior to the adoption of such resolutions,
are hereby severally ratified, confirmed, approved and adopted as the acts of the Bank.
FURTHER RESOLVED, that any Officer of the Bank is hereby severally authorized
and empowered to certify to the passage of the foregoing resolutions and to certify as to the
authenticity of the signatures of other authorized Officers.
70352.000002 EMF_US 27058002vl
-3-
2702
.( .. 11 i:".. 1i.AT'i'T' 'Y.,&" L.o.nini(f; 'LA' .. "Ii" .. Ii."...ro ......... _ti ... -.1 '11. ..... Qh;iU_ ..'
At ";;p.;f ; ....... iiWU . .IYU;' 1_1. IJJ.I:<m0tinf!.
l?plGlor$
Qf the Bank met at 1:1:00 flOOD MDT.,'I'hareah-. Mr.
Penple&.teeonwned. the BankB-oardof DireotQrs meetmg:and $'()ti())'J: 4\1ly
and
... -.,.....;"..t .1i.,. B ..... ...r t....:Ai....li ... I . d . A --
. . "Tl!'.; ..... . ..

the meetingWa5; adJollllled.

2703
ThursdaY. July 08, 201011:01 PM Bullock J 5055214883
At 11 :54 p.m. MOT, Mr. L.c'Itnc, Mr. Bang. Mr. McCollIlCllllnd Mr. Stallings left the mccling.
FDIC'JOTS letters and Supervisory Aemement
'Ille Regulatory Compliance <':ouunittcc of the Satlk Daet at 12:00 noon MUT. Thereaftcr, Mr.
Peuples reconvened the Ban1c. SOlIn! of Direct01'!l1 meeting and upon molinn duly made, !JeC(.mded
and WlElnbnously C8l1'icd, the Board ratified approval of the draft Supervisory Agreement.
Ad.to.rn
'Bclllg 110 n.lltiler buslncliS., thc meeting was adjourned..
Diredon:
..
JameS R. Peoples (Cbainnan)

.. '
. '
"
,
. ' .
.... "
_ ... -. -- ...... _-
Charles J. DerlioQ,
, '
' ' t ......
BenjlD'Oin C.
Gary O. Pdak"-------: .
'. , __ .1-:-:::-=' :-' ...;.' -:-____ _
Remani C. Darrl!
-4-
2704
p.03
MINUTES OF THE MEETING
OF THE BOARD OF DIRECTORS AND THE
SPECIAL COMMITTEE OF
UNITED WESTERN BANCORP, INC.
Held on Thursday, June 3, 2010
A meeting of the Board of Directors (the "Boardj of United western Bancmp, Inc. (the
"Company") was held at approximately 11:00 a.m. (MDT) on Thursday, lune 3, 2010, at the offices of
United Western BancoIp, Inc. in Denver, Colorado. All members of the Board were present either in the
room or telephonically. Messrs. Gibson, McCloskey, Snider, Ravitz, Slezak, Leeds and Darr6, and
Dr. Bullock participated telephonically. Also present at the meeting was Linda A. Selub, Vice President
and Secretary of the Company. .
The meeting was called to order by Mr. Gibson, who acted as Chair of the meeting, and Mr. Dane
called the Legent Special Committee to order. .
Mr. Gibson invited the following persons to join the meeting: Benjamin C. Hirsh, Chief
. Accounting Officer for.the Company; Theodore 1. Abariotes, Deputy General Counsel for the Company;
Michael A. Stallings, Senior Vice President for the Company; lames R. Peoples, Chairman, President and
Chief Executive Officer of United Western Bank (the "Bankj; Thomas J. Kientz, Chief Operating Officer
of the Bank; Gary G. p ~ Chief Credit Officer of the Bank; and Charles Berling, Director of the Bank.
Also in attendance in person or telephonically were Mr. Peter Bang ofKBW, Mr. Ronald Levine of Davis,
Graham & Stubbs (counsel for the Special Committee), and Messrs. Allen McConnell and Bainbridge
DeWeese of Hunton & Williams (counsel for the Bank). Ms. Selub acted as Secretary of the meeting.
Lesent Transaction
. Mr. Gibson asked Mr. Abariotes to summarize the Legent Purchase Agreement Mr. Abariotes
reviewed the summary of Purchase Agreement which had been prepared for the Bank by counsel and then
submitted to Special Committee (a copy of the summary is attached as Exhibit "Aj. Mr. Abariotes
. discussed the terms of the Purchase Agreement, including the parties thereto, pricing structure and
contingencies, the escrow hold-back, and also reviewed the definition of adjusted book value and how it is
determined, reminding the Special Committee that Mr. Duques is standing behind the fundamental
representations and warranties, and that the covenants are self-explanatory. Next, Mr. Abariotes discussed
the indemnification provisions noting that these provisions had taken a protracted period of negotiation,
and that management and legal counsel are all comfortable with the indemnification provisions, as well as
with the litigation claims previously discussed in detail with the Special Committee. Mr. Abariotes then
discussed the closing conditions set out in the Purchase Agreement, noting that in the event regulatory
approval is not obtained by N9vember 30,2010, we have the ability to terminate the agreement Next Mr.
Abariotes reviewed the &crow Agreement which provided for a $6 million escrow to be deposited with
the escrow agent at closing.
Mr. Dane asked Mr. Stallings to update the Special Committee regarding the acquisition
recommendation memorandum contemplating the downside scenario. Mr. Stallings reviewed the revisions
to pages 2-3 in the memo noting the changes made were to provide a worst case and expected case
scenario, and also the ramifications on the model with the Board and Special Committee (the revised pages
2-3 of the memorandum are attached hereto as Exhibit "Bj.
The Special Committee questioned Mr. Abariotes and Mr. Stallings at length about various issues
including the calculation of pricing adjustment at closing, completion of the disclosure schedules, and
required vendor consents for material .. contracts particularly concerning technology licensmg. Mr.
Abariotes advised that the disclosure schedules are nearly complete and reminded the Special Committee
that the signing of the Purchase Agreement would not take place absent completed disclosure schedules.
2705
Minutes of the Board of Directors and the Special Committee
United Western Bancorp, Inc. - June 3, 2010
Page2of6
KBW Fairness Qpinion
Next Mr. Gibson asked Mr. Peter Bang to review KBW's fairness opinion. Mr. Bang took the
Board through the KBW presentation (a copy of which is attached hereto as Exhibit "C") of the analysis
that KBW employed in coming to its conclusion concerning the . fairness of the transaction from a financial
point of view. Members of the Board queried Mr. Bang in detail with regard to the analysis presented and
Mr. Bang responded in detail. At the conclusion of the presentation, Mr. Bang stated that it was KBW's
opinion that the transaction is fair to the Company and the Bank.
The Board and the Special Committee then discussed the KBW presentation in greater detail with
the members of management present at the meeting, asking about the terminal multiples, the valuation
summary and comparables, and public disclosure of the transaction. Further discussion ensued. At the
conclusion of the discussion, upon motion made and seconded, the following resolutions were
unanimously approved:
WHEREAS, the Special Committee of the Board of Directors of the Company, having been
created by the Board of Directors for the purposes of determining whether or not the Bank should enter
into a formal agreement with Legent Group, LLC to purchase the membership interest in Legent Clearing,
LLC, recommends to the Board of Directors of the Company and the Bank the purchase of Legent
Clearing, LLC upon the terms and conditions provided in the Purchase Agreement, reviewed and discussed
in detail at this meeting.
WHEREAS, the Board of Directors ("Board") of United Western Bancorp, Inc. (the "Company"
or "Parent") deems it fair, advisable and in the best interests of the Company to adopt and enter into that
certain Purchase Agreement (the "Purchase Agreement") by and among the Company, United Western
Bank. (the "Bank" or "Buyer"), Legent Group, LLC ("Legent'') and Henry C. Duques (collectively with
Legent, "Seller"), pursuant to which the Legent is selling its membership interests in Legent Clearing, LLC
to the Bank (the "Acquisition'').
WHEREAS, the Board believes it is in the best interests of the Company to execute the Purchase
Agreement and to authorize the Company to take all actions necessary or appropriate to deliver and
perform its obligations under the Purchase Agreement and to cause the Company to consummate the
transactions contemplated thereby, including the Acquisition.
NOW THEREFORE, BElT:
PurchllSe Agreement
RESOLVED, that the Board hereby consents to, approves, ratifies, confirms and authorizes the
Acquisition, upon the terms and conditions set forth in the Purchase Agreement, and the various other
documents, certificates, instruments and agreements contemplated by the Purchase Agreement (all of such
documents, certificates, instruments and agreements, including the Purchase Agreement and the Escrow
Agreement, being referred to as the "Purchase Agreement Related Documents"), and all transactions
contemplated therein are hereby authorized and approved in all respects and for all purposes.
FURTHER RESOLVED, THAT THE Board, upon the recommendation of the Special
Committee, hereby consents, approves and authorizes the issuance of the Subject Shares (as defined and
determined pursuant to Section 2.2( c) of the Purchase Agreement as additional consideration to acquire
Legent Clearing, LLC.
FURTHER RESOLVED,that Guy A. Gibson, Michael J. McCloskey, Benjamin C. Hirsh,
Theodore J. Abariotes and Michael A. Stallings, as officers of the Company ("Officersj are hereby
severally authorized, empowered and directed, for, on behalf and in the name of the Company, to make,
execute, deliver and perform the Purchase Agreement Related Documents, with such revisions in the terms
70352.000002 EMF_US 27058002vl
Minutes of the Board of Directors and the Special Committee
United Westem Bancorp, Inc. - June 3, 2010
Page 3 of6
and provisions thereof as the executing Officer or Officers may, in his or their sole discretion, as approved
by the Company's Chief Operating Officer, deem necessary or desirable and in the best interests of the
Company (his or their signatures being conclusive evidence that he or they did so deem any such changes
to be necessary or desirable and in the best interests of the Company) and to make, execute and deliver any
and all further agreements, instruments, certificates and documents and do and perform all additional acts
which any or all of such Officers deem necessary or appropriate to carry out the Acquisition and the intent
of these resolutions.
FURTHER RESOLVED, that all previous action taken or agreements entered into by any or all
of the Officers or representatives of the Company on behalf of the Company in negotiating or carrying out
the Acquisition into full force and effect are hereby ratified, confirmed, approved and adopted as duly
authorized acts of the Company in all respects and for all purposes.
M"lSceIllllleoUS
RESOLVED, that the Officers of the Company, both before and after the time at which the
agreements referenced herein become effective, are hereby authorized, empowered and directed, for, on
behalf and in the name of the Company, to do and perform or cause to be done and performed, all other
acts, to payor cause to be paid, on behalf of the Company, all related costs and expenses and to execute
and deliver or cause to be executed and delivered such other notices, requests, demands, directions,
consents, approvals, orders, applications, agreements, instruments, certificates, financing statements,
continuation statements, acknowledgments, undertakings, supplements, amendments, further assurances
and other communications of any kind, in the name of and on behalf of the Company, as he, she or they
may deem necessary, advisable or appropriate to effect the intent of the foregoing resolutions or to comply
with the requirements of the instruments approved and authorized by the foregoing resolutions.
FURTHER RESOLVED, that any acts of any Officer and of any person or persons designated
and authorized to act by any Officer, which acts would have been authorized by the foregoing resolutions
except that such acts were taken prior to the adoption of such resolutions, are hereby severally ratified,
confirmed, approved and adopted as the acts of the Company.
FURTHER RESOLVED, that any Officer of the Company is hereby severally authorized and
empowered to certify to the passage of the foregoing resolutions and to certifY as to the authenticity of the
signatures of other authorized Officers.
At 11:54 p.m. MDT, Mr. Levine, Mr. Bang, Mr. McConnell and Mr. Stallings left the meeting.
The Regulatory Compliance Committee of the Company met at 12:00 noon MDT. Thereafter, Mr.
Gibson reconvened the Company's Board of Directors meeting and upon motion duly made, seconded and
unanimously carried, .the Board ratified approval of the draft Supervisory Agreement.
Mr. Gibson asked if there was any further business. There being none, upon motion duly made
and seconded, the meeting was adjourned at approximately 12:38 p.m. (MDT).
Respectfully submitted,
DRAFT
Linda A. Selub, Secretary
Minutes of the Board of Directors and the Special Committee
United Western Bancorp, Inc. - June 3,2010
Page 4 of6
Exhibit "A"
Purchase Agreement Summary
2 7 6 ~ -
Minutes of the Board of Directors and the Special Committee
United Western Bancorp, Inc. - June 3, 2010
PageS of6
Exhibit "B"
Revised pages 2-3 of the Memorandum
-
Minutes of the Board of Directors and the Special Committee
United Western Bancorp, Inc. - June 3, 2010
Page60f6
Exhibit"C"
KBW Presentation
Note: the KBW Presentation is not attached to this document as KBW has requested that the Company and
the Bank keep the presentation in confidential status.
2 7 I ~
E
2713
-
GENERAL
CONFIDENTIAL EXHIBIT E
Information Regarding Legent Clearing
Legent Clearing provides securities transaction execution, clearing and settlement
services, and operations outsourcing services. Securities clearing and settlement is the process of
matching, recording, and processing transaction instructionS and then exchanging payment
between counterparties. Legent Clearing also provides financing for client inventory through .
margin lending. Legent Clearing's operations outsourcing solutions .allow broker-dea1ers to
outsource to Legent Clearing certain administrative functions relating to clearing and settlement,
from order entry to trade matching and settlement, while maintaining their ability to fmance and
capitalize their business. Legent Clearing also provides operations outsourcing services relating
to a variety of clearing, record-keeping, and custody-related functions.
Securities clearing is the verification of information between two broker-dealers in a
securities transaction and the subsequent settlement of that transaction, either as a book,,:,entry
transfer or through physical delivery of certificates, in exchange for payment. Record-keeping
includes customer account maintenance and customized data processing services. Custody
services are the safe-keeping of another party's assets, such as physical securities. Clients for
whom Legent Clearing provide securities clearing, record-keeping, and custody-related services
are generally referred to as its "correspondents." The clearing relationships typically are ''fully-
disclosed." .
Legent Clearing's clients engage in either the retail or institutional brokerage business in
the U.S. Its correspondents generally engage it either to act as a full-service clearing firm,
whereby its. securities Clearing and processing personnel execute and clear transactions and
L e g e n ~ Clearing is the broker-dealer of record, or as a provider of operations outsourcing
solutions, whereby its correspondents execute and clear transactions and Legent Clearing
performs a number of related administrative back-office functions, such as record-keeping and
reconciliations. In this capacity, Legent Clearing is not the broker-dealer of ' record.
SECURITIES PROCESSING SOLUTIONS
Transactions involving securities and other financial market instruments originate with an
investor, who places an order with a broker who in tum routes that order to an appropriate
market for execution. At that point, the parties to the transaction coordinate payment and
settlement of the transaction through a clearinghouse. The records of the parties involved must
then be updated to reflect completion of the transaction..
Tax, accounting and record-keeping requirements must be complied with in connection
with the transaction and the customer's account information must correctly reflect the
transaction. The accurate processing of trading activity requires effective automation and
information flow across multiple systems and functions within the brokerage firm and across the
systems of the various parties that participate in the execution of a transaction.
This is provided to pay amounts in addition to those returned in SIPC liquidation. This
additional insmance policy is limited to a combined return to any customer from a trustee, SIPC
and the London underwriters of $150 million, including cash of up to $2 million. It does not
protect against losses from the rise and fall in the market value of investments, and does not
cover all assets. Such coverages are provided in connection with its securities clearing services
and are for the benefit of all customers of its introducing broker-dealer clients.
REGULATORY CAPITAL AND CUSTOMER PROTECTION REQUIREMENTS
As a registered broker-dealer and member of FINRA, Legent Clearing is subject to the
SEC's net capital rule. The net capital rule, which specifies minimum net capital requirements
for registered broker-dealers, is designed to measure the general financial integrity and liquidity
of a broker-dealer and, requires that at least a minimum. part of its assets be kept in relatively
liquid form. The net capital rule provides specific criteria to measure regulatory, net capital,
which requires the firm to apply deductions and other operational charges to its net worth to
reflect illiquid assets. These deductions also include adjustments, which are commonly called
"haircuts," which reflect the possibility of a decline in the market value of fmn inventory before
disposition. The effects of securities lending and securities borrowing activities on net capital
calculations are described in the ''Regulation of Securities Lending and Borrowing" section
b e l o w ~
Failure to maintain the required net capital may subject Legent Clearing to suspension or
revocation of registration by the SEC and suspension or expulsion by FINRA and other
regulatory bodies and, if not cured, coul,d ultimately' require the liquidation of Legent Clearing.
The net capital rule prohibits payments of dividends, redemption of stock, the prepayment of
subordinated indebtedness, and the making of any urisecured advance or loan to a stockholder,
employee or affiliate, if such payment would reduce Legent Clearing's net capital below required
levels.
The net capital rule also provides that the SEC may restrict any capital withdrawal,
including the withdrawal of equity capital, or unsecured loans or advances to stockholders,
employees or affiliates, if such capital withdrawal, together with all other net capital withdrawals
during a 30-day period, exceeds 30% of excess net capital and the SEC concludes that the capital
withdrawal may be detrimental to the financial iiltegrity of the broker-dealer. In addition, the net
capital rule provides that the total outstanding principal amount of a broker-dealer's indebtedness
under specified subordination agreements, the proceeds of which are included in its net capital,
may not exceed 70% of the sum. of the outstanding principal amount 'of all subordinated
indebtedness included in net capital, par or stated value of capital stock, paid in capital in excess
of par, retained earnings and other capital accounts for a period in excess of 90 days. A change
in the net capital rule, the imposition of new rules or any unusually large charges against net
capital ,could limit some of its securities clearing and operations outsourcing activities that
require the intensive use of capital and also could restrict the Bank's ability to withdraw capital
from Legent Clearing, which in tum could limit'the Bank's ability to pay dividends or engage in
other activities. A significant operating loss or any unusually large charge against net capital
could adversely affect Legent Clearing's ability to expand or even maintain its present levels of
clearing business.
In addition, as a regulated broker-dealer, Legent Clearing is also subject to the SEC's
customer protection rule. The customer protection rule operates to protect both customer funds
and customer securities. To protect customer securities, the customer protection rule requires
that the broker-dealers promptly obtain possession or control of customers' fully paid securities
free of any lien. However, broker-dealers may lend or borrow customers' securities purchased
on margin or customers' fully paid securities, if the broker-dealer provides collateral exceeding
the market value of the securities it borrowed and makes certain other disclosures to the
customer. With respect to customer funds, the customer protection rule requires broker-dealers
to make deposits into an account held only for the benefit of customers ("reserve account") based
on its computation of the reserve formula. The reserve formula requires that broker-dealers
compare the amount of funds it has received from customers or through the use of their securities
("credits") to the amount of funds the fum has used to fmance customer activities ("debits"). In
this manner, the customer protection rule ensures that the broker-dealer's securities lending and
borrowing activities do not impact the amount of funds available to customers in the event of
liquidation.
The processing of personal information is required to provide Legent Clearing's services.
Data privacy laws and regulations in the U.S. and foreign countries apply to the collection,
transfer, use, and storage of personal information. In the U.S. the federal Gramm-Leach-Bliley
Act, which applies to financial institutions, and various state privacy laws, which apply to
businesses that collect personal information, apply directly to Legent Clearing. The Gramm-
Leach-Bliley Act and state privacy laws apply indirectly, through contractual commitments with
its clients and through industry standards, to the entities that perform its investor communication
and securities processing services. The state privacy laws require notification to affected
individuals, state officers, and consumer reporting agencies in the event ofa security breach of
computer databases or physical documents that results in unauthorized access to or disclosure of
certain non-pUblic personal information. These regulations and laws also impose requirements
for safeguarding personal information through internal policies and procedures.
REGULATION OF SECURITIES LENDING AND BORROWING
As part of its . clearing business, Legent Clearing engages in securities lending and
borrowing transactions with other broker-dealers either by lending the securities that Legent
Clearing holds for its correspondents and their customers to other broker-dealers or by borrowing
securities from banks or other broker-dealers to facilitate transactions by its correspondents.
Securities lending and borrowing activities are subject to the SEC's net capital rule described
above. Because engaging in securities lending and borrowing presents counterparty credit risk to
the broker-dealer, the provisions in the net capital rule require unsecured receivables to be
deducted from the broker-dealer's net worth when it computes its "net capital." In addition, the
net capital rule requires a 100% deduction of the amount by which the market value of securities
loaned exceeds cash collateral received. Securities lending and borrowing activities are also
subject to the SEC's customer protection rule, the objective of which is to ensure that assets of
the fum's customers will be available to be distributed to them in the event of a liquidation ofa
registered broker-dealer. SEC Rules 8c-1 and 15c2-1 (the "hypothecation rules") under the
Securities Exchange Act of 1934 (the "Exchange Act") set forth requirements relating to the
borrowing or lending of its correspondents' customers' securities. The hypothecation rules
prohibit it from borrowing or lending correspondents' customers securities in situations where
I
J
(1) the securities of one customer will be held together with securities of another customer,
without first obtaining the written consent of each customer; (2) the securities of a customer will
be held together with securities owned by a person or entity that is not a customer; or (3) the
securities of a customer will be subject to a lien for an amount in excess of the aggregate
indebtedness of all customers' securities.
Regulation T was issued by the Federal Reserve Board pursuant to the Exchange Act.in
part to regulate the borrowing and lending of securities by broker-dealers. Although Regulation
T allows broker-dealers to deposit cash in order to secure the borrowing of securities for the
purpose of making deliveries of such securities in the cases of short sales, failures to receive
securities they are required to deliver, or other similar cases and to lend securities for such
purposes against such a deposit, it also includes provisions regarding the provision of collateral.
For example, under the provisions of Regulation T, broker-dealers are generally required to
collect cash equal to 50% of the value of equity securities purchased in a margin account.
However, Legent Clearing may require the deposit of a higher percentage of the value of equity
securities purchased on margin. Securities borrowed transactions are extensions of credit to the
securities lender in that the lender generally receives cash collateral that exceeds the market
value of the securities that were lent. With respect to such securities borrowing and lending,
Regulation SHO issued under the Exchange Act generally prohibits, among other things, a
broker-dealer from accepting a short sale order unless either the broker-dealer has borrowed the
security, or entered into a bona-fide arrangement to borrow the security or has "reasonable
grounds" to believe that the security can be borrowed so that it can be delivered on the date
delivery is due and has documented compliance with this requirement.
Failure to maintain the required net capital, accurately compute the reserve formula or
comply with Regulation T or Regulation SHO may subject Legent Clearing to suspension or
revocation of registration by the SEC and suspension or expulsion by F1NRA and other
regulatory bodies and, if not cured, could ultimately require the liquidation of its clearing and
outsourcing solutions business. A change in the net capital rule, the hypothecation rules, the
customer protection rule, Regulation T, Regulation SHO, or the imposition of new rules could
adversely impact its ability to engage in securities lending and borrowing, which in tum could
limit its ability to pay dividends, repay debt or repurchase shares of outstanding stock.
MARGIN RISK MANAGEMENT
Its margin lending activities expose the capital of Legent Clearing to significant risks.
These risks include, but are not limited to, absolute and relative price movements, price
volatility, and changes in liquidity of the underlying margin collateral, over which Legent
Clearing has virtually no control. Legent Clearing attempts to minimize the risks inherent in its
margin lending activities by retaining in its margin lending agreements the ability to adjust
margin requirements as needed and by exercising a high degree of selectivity when accepting
new correspondents. When detennining whether to accept a new correspondent, Legent Clearing
evaluates, among other factors, the brokerage fum's experience in the industry, its financial
condition and the background of the principals of the firm. In addition, Legent Clearing has
multiple layers of protection, including the balances in customers' accounts, correspondents'
commissions on deposit, and clearing deposits provided by correspondent firms, in the event that
a correspondent or one of its customers does not deliver payment for its services. Legent
, .
Clearing also maintains a bad debt reserve. Its customer agreements and fully-disclosed clearing
agreements require industry arbitration in the event of a . dispute. Arbitration is generally less
expensive and more time efficient than dispute resolution through 'the court system. Although
Legent Clearing attempts tomjnirnize the risk associated with its margin lending activities, there
is no assurance that the assumptions on which it bases its decisions will be correct or that it is in
a position to predict factors or events which will have an adverse impact on any individual client
or issuer, or the securities markets in general.
STATE REGULATION
Legent Clearing is a broker-dealer authorized to conduct business in all 50 states under
applicable state securities regulations.
REGULATORY COMPLIANCE
Currently Legent Clearing maintains a compliance department headed by Craig Black,
Executive Vice President. Legent Clearing's compliance' capabilities are further enhanced
through its technology alliances with SunGard AFS and Thomson Financial.
As a result of Legent Clearing's 2007 FINRA exam, Legent Clearing was fmed in the
amount of $350,000 for failing to design and implement an adequate AML program in
accordance with the Bank Secrecy Act.
In November 2009, Legent Clearing retained KAPCO Group, a third party broker-dealer
compliance firm, to conduct an Anti-Money Lautidering Audit of Legent Clearing's AML
program. KAPCO confined its review to AML related functions that occurred during portions of
calendar years 2008 and 2009, beginning with the close of Legent Clearing's last 2008 audit
(November 12,2008) and until the close business November 14,2009. KAPCO concluded that
the firm has addressed all of the deficiencies noted in the last independent audit as well as the
issues highlighted in the 2008 FINRA examination. In addition, Legent Clearing was in the
process of implementing and enhancing certain AML processes and procedures highlighted by
KAPCO during its audit. KAPCO also concluded that Legent Clearing's AML Compliance
Program includes the . elements required by the current governmental regulations and FINRA,
that no material deficiencies were identified.in any part of the AML Compliance Program, that
Legent Clearing implemented the required components of its AML Compliance Program,
including a Customer Identification Program ("CIP") and the self-imposed enhancements and
that there were no material deficiencies in the implementation of Legent Clearing's AML
Compliance Program. Since the KAPCO initiative, FINRA has conducted an onsite exam of
Legent Clearing in May 2010, with no material fmdings stated in the exit interview.
While Legent Clearing has taken remedial action on previously identified regulatory
issues, of equal importance will be the process to eHminate any BSAlAML findings and apply all
BSAlAML best practices for the industry, as well as those best practices adopted by the Bank,
going forward. Mr. Frankel's leadership will prevent further missteps with regard to BSAlAML
issues. In addition, the reinsertion of Mr. Sime as Chief Operating Officer for Legent Clearing
should assist in alleviating any BSAlAML issues prospectively. The fact that Legent Clearing
has experienced repeat violations adds additional complexity and importance to the process. A
2 7 2 ~
full BSAlAML Risk Assessment Will. be completed by the Bank's Chief Compliance Officer,
Mr. Tom Loveday, and a plan of action will be formalized to integrate Legent Clearing under the
Bank's BSAlAML policy and procedures.
LITIGATION
As a result of its securities clearing and operations outsourcing services, Legent Clearing
is periodically involved in litigation matters. The following is not a complete list of all recent
litigation in which Legent Clearing has been involved, but is a summary of recent material
litigation:
Phillip Stem. Receiver for Enterprise Trust Company v. Legent ClearingLLC.
Case No. 09 CV 794 in the U.S. District Court for the Northern District of DUnois (Eastern
Dlv.) (the ''Enterprise Complaint"). The Enterprise Complaint was filed on February 9, 2009.
Enterprise Trust Company (''Enterprise'') established a securities account for the purpose of
trading securities and derivative contracts with TradeRight Securities, Inc. (''TradeRight''), who
was the introducing broker-dealer ("IBD'') of Legent Clearing and cleared transactions through
Legent Clearing. The allegations against Legent Clearing in the Enterprise Complaint stem from
certain acts of two individuals involved with Enterprise and TradeRight. These individuals are
also the subject of an on-going SEC fraud investigation.
The plaintiff in the Enterprise Complaint, who was appointed as the receiver for
Enterprise on March 5, 2008, alleges that these two individuals improperly used the assets of
Enterprise custodial customers to engage in highly speculative securities trading strategies that
included short selling, single stock futures, and options in a margin account at Legent Clearing.
The plaintiff alleges that Legent Clearing knew that some of these custodial accounts were not to
be traded and that LegCnt Clearing knowingly aided and abetted Enterprise in making
speculative trades resulting in trading losses in excess of $11 million to the customers of
Enterprise, but providing over $2 million in commissions to Legent Clearing.
The plaintiff specifically alleges that Legent Clearing knew the many of Enterprise's
customers' funds in the accounts were .primarily invested in mutual funds and many of the
accounts were IRA or 403(b) retirement accounts for which margin trading was not authorized
and could create adverse tax consequences for the Enterprise customers. In connection with the
mutual fund accounts, the plaintiff alleges that Legent Clearing demanded and received account
documentation that reflected clients' objectives, which did not reflect the use of funds for margin
purposes, and after ascertaining that these objectives did not allow for margin trading, Legent
Clearing then requested proof that: (i) each of these Enterprise clients knowingly approved the
use of their mutual.fund shares for margin and (il) they were provided with appropriate margin
disclosures. According to the plaintiff, rather than Legent Clearing receiving' signed
documentation from each Enterprise customer authorizing the use of their assets for margin
purposes and an attestation from each customer that the. had received and understood the
appropriate margin disclosures, LegentClearing accepted a representation from TradeRight that
it had received a representation from Enterprise that its customers whose assets were transferred
to Legent Clearing had received and approved the required documentation regarding the margin
accounts; however, these customers were not aware and had not approved of the margining of
their assets.
The plaintiff alleges that in 2007. approximately $49 million of customers' mutual funds
were transferred to Legent Clearing and US Bank with Legent Clearing's assistance. The
Enterprise Complaint seeks damages in excess of $4 million against Legent Clearing for the
following: (i) breach of fiduciary duty that Legent Clearing owed to Enterprise; (ii) violation of
the lllinois Consumer Fraud Act; (iii) common law fraud; (iv) violation of the illinois Fiduciary
Obligations Act; (v) aiding and abetting a breach of a fiduciary duty; (vi) aiding and abetting
fraud and (vii) unjust enrichment to Legent Clearing in an approximate amount of $2 million.
On April 10, 2009, Legent Clearing med a Motion to Dismiss arguing that: (i) the plaintiff
lacked standing to bring the claims against Legent Clearing, arguing that the Enterprise
customers, and not thereceiver, are the proper parties to bring. claims against Legent Clearing
and also that many of the customers have brought separate actions against Legent Clearing
(discussed below), and therefore, this complaint is duplicative of those other actions; and (ii) the
complaint fails to state a claim upon which relief can be granted.
On July 28, 2009, the court ruled that the receiver did have standing to bring the claims
and that such claims are not deemed to be duplicative since the receiver does have an obligation
to seek redress for the harm done to Enterprise which will benefit its customers. The parties in
the Enterprise Complaint are now in the discovery process and settlement discussions between
the parties have taken place.
There are three other "groups" of Enterprise-related claims against Legent Clearing. The
trrst "group" of claims is are referred to as the Balistreri Claims. The Balistreri Claims relate to
a pending action known as Legent Clearing LLC v. Andrew Balistreri et aL, Case No. 1:09-
CV-03662 in the U.S. District Conrt for the Northern District of Dlinois (Eastern Div.)(the
"Balistreri Complaint"). In the Balistreri Complaint, Legent Clearing sought and ultimately
received declaratory relief in the way of a permanent injunction whereby most of the Enterprise
customers who are named in this complaint are precluded from ming separate or collective
FINRA arbitration proceedings against Legent Clearing as a result of the losses the Enterprise
customers incurred as discussed above. Instead, these customers must litigate the matters in the
nlinois federal court proceeding, which has the same judge who presides over the receiver case
discussed above. The amount claimed in the Balistreri Complaint is approximately $5.1 million.
The next group are the Las Vegas Claims. Messrs. Gibson, Kirschman and Duran-all
former Enterprise customers-med FINRA arbitration matters in 2008 against Legent Clearing.
Mr. Gibson alleged that he lost $360,000 due to the fraudulent activities related to the Enterprise
margined trading. Mr. Kirschman claims losses of approximately $1 million. Mr. Duran claims
he and ten other Enterprise customers who joined in his FINRA arbitration claim lost
approximately $2.6 million. According to Legent Clearing's counsel, one attorney represented
all these claimants and Legent Clearing contested the arbitrability of the Las Vegas Claims,
arguing that the Enterprise customers were not customers of Legent Clearing-they were
customers of TradeRight and thus Legent Clearing should not be subject to the FINRA
arbitration requirement. Legent was successful in arguing against baving to arbitrate the Las
Vegas Claims and the Las Vegas Claims were dismissed without prejudice, meaning that these
claimants could bring the claims against Legent Clearing in another forum. Per Legent
Clearing's counsel the statute of limitations has not run on these claims.
The last group of Enterprise cases includes the Brooks Claim. and the Golds Claim. The
Brooks Claim case was filed by Ms. Brooks in California state court against the following
defendants: Ruthie Gomez, Advisory Financial COD$ultants, Inc., Kimble Mason, George Dragel,
TradeRight and Legent Oearing. The Brooks Claim seeks damages of approximately $350,000
from the defendants for losses in Ms. Brooks' Enterprise account. The case was recently
,removed to California federal court.
The Golds Claim is a FINRA arbitration matter filed in 2009 by Barbara Golds against
IPL Financial Corporation, LINSCOlPrivate Ledger Corporation, Legent Clearing and David
Steckler. Ms. Golds alleges she lost approximately $800,000 as a result of the fraudulent
activities of Enterprise as discussed above. Legent Clearing's counsel has. advised that it does
not appear that any trades involving Ms. Golds' account ever cleared through Legent Clearing.
In addition to the Enterprise cases discussed above, there is another current material
litigation matter involving Legent Clearing. This matter is known as the Global Enterprise
Group Holding. S.A. v. Anthony Ottimo, EKN Financial Services, Inc. and Legent
Pearing. Case No CV-07-4904-TCP-WDW, in the U.s. District Court, Eastern District of
New York. The plaintiff alleges that it incurred damages in excess of $3 million for Legent
Clearing aiding and abetting the improper and unlawful conduct of Mr. Ottimo and EKN (an
mD) by clearing trades totaling $500 million and loaning hundreds of millions of dollars on
margin to plaintiff without being provided any account agreement between Global or EKN or
any margin agreement. Currently, EKN, the mD and Legent Clearing's customer, is funding the
defense of the litigation. We anticipate that future funding of the defense costs by EKN may
come to an end soon as EKN runs out of resources. Thereafter, costs associated with this
litigation will be recovered from the escrow account.
OTHER RISK FACTORS
Legat Cleari1lg', existi1lg cletui1lg correBpo1Ultmts 1IUIJ choose to perform their OW'll
securitie, clearing servit;es liB their operatio1l' grow.
Legent Clearing markets securities clearing services to its existing correspondent clients
on the strength of its ability to process transactions and perform related back-office functions
more effectively than these clients could perform these, functions themselves. As its
correspondent clients' operations grow (e.g., TradeKing), they may consider the option of
performing securities clearing functions themselves, in a process referred to in the securities
industry as "self-clearing." As the transaction volume of a broker-dealer grows, the cost of
implementing the necessary infrastructure for self-clearing may be eventually offset by the
elimination of per-transaction processing fees that would otherwise be paid to a clearing firm.
Additionally, performing their own securities clearing services allows self-clearing broker-
dealers to retain their customers' margin balances, free credit balances and securities for use in
margin lending activities. If a significant number of clearing correspondents or correspondents
representing a significant portion of Legent Clearing's bUsiness tenninate thek clearing
relationship to become self-clearing, this could result in a material adverse. effect on Legent
Clearing's business, financial condition, and results of operations.
,. 2 7 2 ~
Legent Clearing is prepared to address this potential client loss by offering an operations
outsourcing service, which will afford fIrms the ability to remain or become self-clearing without
the necessity of maintaining an independent.clearing infrastructure. However, some firms may
nevertheless choose to change to self-clearing operations and not outsource their operations to
Legent Clearing, which could have a material adverse effect on its business, financial condition,
and results of operations.
Legent Clearing's securities clearing business may be exposed to risk from its counterparties
and third parties.
In the normal course of business, Legent Clearing's securities clearing activities involve
transaction execution, clearing and settlement services, and financing of client inventory through
margin lending. With these activities, Legent Clearing may be exposed to risk in the event its
clients, other broker-dealers, banks, clearing organizations, or depositories are unable to fulfIll
contractual obligations. Furthermore, the margin loans it provides to investors subject it to risks
inherent in extending credit. Such credit risk includes the risk that the market value of the
collateral it holds could fall below the amount of an investor's indebtedness. This risk is
especially great when the market value of the collateral becomes highly volatile. Legent
Clearing's agreements with margin account investors permit it to liquidate their securities with or
without prior notice in the event that the amount of margin collateral becomes insufficient.
Despite those agreements and LegentClearing' s intemal policy with respect to. margin,
which may be more restrictive than is required under applicable laws and regulations, Legent
Clearing may be unable to liquidate the customers' securities for various reasons, including the
fact that:
the pledged securities may not be actively traded;
there may be an undue concentration of securities pledged; or
the securities pledged have been deemed worthless or have been "canceled by their issuer.
Legent Clearing's margin lending is subject to the margin rules of the Federal Reserve
Board and FINRA, whose rules generally permit margin loans of up to 50% of the value of the
securities collateralizing the margin account loan at the time the loan is made, subject to
requirements that the customer deposit additional securities or cash in its ~ c c o u n t s so that the
customer's equity in the account is at least 25% of the value of the securities in the account. In
certain circumstances, Legent Clearing may provide a higher degree of margin leverage to its
correspondents with respect to their proprietary trading businesses. As a result, Legent Clearing
may increase the risks otherwise associated with margin lending with respect to these
correspondents and customer accounts.
Legent Clearing's practice of recording securities clearing transactions may expose it to off-
balance sheet risk of loss.
Legent Clearing records clients' securities clearing transactions on a settlement date
basis, which is generally three business days after the trade date. Legent Clearing is therefore
13
2726
exposed'to off-balance sheet risk of loss on unsettled transactions in the event clients and other
counterparties are unable to fulfill contractual obligations.
Legent Clearing" ,ecuritie, cleoring busine" IIUIJ be subject to liability uruler it, membership
agreements with excluuage, tmtl clearinghou,e&.
Legent Clearing is a member of numerous exchanges and clearinghouses. Under the
membership agreements, members are generally required to guarantee the performance of other
members. Additionally, if a member becomes unable to satisfy its obligations to the clearing .
house, other members would be required to meet these shortfalls. To mitigate these performance
risks, the exchanges and clearinghouses often require members to post collateral. Legent
Clearing may be subject to liability under these arrangements in case of default of a member of
those exchanges or clearinghouses. \
The involvement 0/ it, ,ecuritie, clearing busine" in option, 1IUII'1cet, subject' Legtmt
Clearing to ri,k, inherent in conducting burine" in tho,e market&.
Legent Clearing clears options contracts on behalf of its correspondents and their
customers. Trading.in options contracts is generally more highly leveraged than trading in other
types of securities. This additional leverage increases the risk associated with trading in options
contracts, which in turn raises the risk that a correspondent or customer may not be able to fully
repay its creditors, including Legent Clearing, if it experiences losses in its options trading.
14
2727
F
2728
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CONFIDENTIAL EXIDBIT F
Business Plan
2729
UNITED WESTERN BANK
CONFIDENTIAL BUSINESS PLAN
FOR
ACQUISITION OF LEGENT CLEARING
2730
TABLE OF CONTENTS
COMPANY OVERVIEW ............................................................................................................... 1
COMPANY HIGHLIGHTS ............................................................................................................ 2
Track Record of Growth and Customer Retention ................................................................................................... 2
Competitive Differentiation ............................ ; ......................................................................................................... 4
Large Target Market ................................................................................................................................................. 5
Accomplished Management ..................................................................................................................................... 5
Growth Initiatives .............................................................................................................................................. : ...... 5
Financial Highlights ......................................... ; ................................... ~ ................................................................... 7
mSTORY AND OWNERSHIP OF THE COMPANY .................................................................. 8
Company Founding .................................................................................................................................................. 8
Legent Uses Partner Strategy to Attract Large Clients ............................................................................................. 8
Legent Faces Challenging Financial Markets ... ~ .................................................................. ; .................................... 8
. Legent Continues Adding New Correspondents ....................................................................................................... 9
Company Ownership .: .............................................................................................................................................. 9
BUSINESS OVERVIEW .............................................................................................................. 1 0
Overview ............. ; .................................................................................................................................................. 10
Products and Services ............................................................................................................................................. 10
Account Services .................... ~ ............................................. : .................................................................................. 12
Asset Management ........................................................................................................................... , ..................... 13
What Makes Legent Different ................................................................................................................................. 13
Customers ................................................................................................................................................................ 15
Target Market ......................................................................................................................................................... 15
Pricing .................................................................................................................................................................... 16
Operations ............................................................................................................................................................... 17
Staffing ................................................................................................................................................................... 17
Facilities .................................................................................................................................................................. 19
Technology .............................................................................................................................................................. 19
Thomson Financial ................................................................................................................................................. 19
SunGard (Automated Financial Systems) ............... : ....................................... : ....................................................... 20
Envestnet ................................................... ; .................... ~ ....................................................................................... 20
REGULATORY COMPLIANCE .................................................................................................. 21
STRATEGIES FOR GROWTH .................................................................................................... 22
Overview ................................................................................................................................................................ 22
Continue Penetrating Target Market Accounts ....................................................................................................... 22
Partner with Large Clients ....................................................................................... : ............................................... 22
Enhance Company Visibility and Marketing ................................................................................... ; ...................... 23
Selectively Expand Technologies ........................................................................................................................... 23
INDUSTRY & COMPETITION ANALYSIS ............................................................................... 24
Overview ................................................................................................................................................................ 24
Key Trends ...... , ............ ; .................................... : ..................................................................................................... 24
MANAGEMENT TEAM .............................................................................................................. 28
Overview ................................................................................................................................................................ 28
2731
1
FINANCIAL INFORMATION ..................................................................................................... 30
Results of Operations .............................................................................................................................................. 30
Legent Forecast and Merger Model- Statement of Assumptions .......................................................................... 31
Legent Forecast and Merger Model. ........................................................ : .............................................................. 33
Income Statement Assumptions (2010- 2013) ........................................................................................................ 36
Revenue Assumptions .............................................................. ; ......................................... ; .................................... 38
Expense Assumptions .................................... ; ........................................................................................................ 41
Balance Sheet Assumptions (2010- 2013) ................................... , ........................................................................... 45
2 7 ~ . 2
11
Legent Clearing Business Plan
Confidential
Large Target Market
While Legent can effectively service small or large clients, Legent's target market is
correspondent fIrms with less than 600 brokers/registered investment advisors. Within an
industry of over 4,900 brokerage fIrms,this represents approximately 99% of the total marketS
(in terms of number of fIrms). Total revenues for the entire industry are estimated by Legent
management to be in excess of $5 billion annually.
The current challenges in the fmancial markets will likely have a signifIcant impact on clearing
fIrms and the industry for years to come. The clearing industry has already experienced
signifIcant consolidation. That trend is likely to continue, leaving brokerage and investment
fIrms fewer alternatives and a greater reliance on larger or 'super' clearing fIrms. Legent
management believes this trend will likely only strengthen Legent's competitive position of the
longer term as a differentiated alternative to such firms. See Industry and Competition Analysis
below for further description.
Accomplished Management
Legent Clearing's management team is comprised of a cohesive, experienced team of
professionals. Legent's management team of seasoned managers have experience that ranges
from ten to over 35 years of experience in clearing business operations, information technology,
regulatory and compliance issues. See Management Team.
Growth Initiatives
Management seeks to grow the Company through several key strategies such as to continue to
enhance marketing and visibility of the Company, to selectively expand technologies as well as
consider select strategic acquisitions. The three strategies expected to drive most of the
Company's growth in the near and long term include:
Continued New Client Additions - Since 2006, Legent has added 44 net new
correspondent finns, several of which are Legent's largest correspondents today.
Continued client acquisitions will be driven by a constant commitment to direct sales
and prospecting, which is led by both Chris Frankel and Ray Maratea.
Partner with Select Larger Correspondents - To attract larger clients, Legent will seek
to develop a unique 'partner' relationship with select correspondent customers. This
approach extends beyond a vendor-client relationship and offers a closer alignment of
each group's interests. The form of this partnering relationship can vary between
firms, but may include Board representation, participation on Legent's Client Steering
Committee, capital investments in the form of correspondent loans with repayment
terms linked to the level of correspondent's business, or other strategies that provide a
5 See Industry and Competition Analysis - Competitive Analysis - Table "Market Estimate" for number of firms
with 500 or less brokers; Source SNL Financial.
2737
Page 5 of48
Legent Clearing Business Plan
Confidential

financial and strategic stake in each firm's business. Legent has successfully used
these strategies in the past to secure many of its largest clients.
Expansion into the Registered Investment Advisor (RIA) Market - The Registered
Investment Advisor market is an untapped and significant potential market for
Legent. RIAs are generally independent advisors and may include the former wire
house broker who, having built his book of relationships over a number of years,
decides for personal and professional reasons to handle his clients on an RIA basis.
This allows the broker to capture significantly more of the net revenue related to his
clients and to reduce his clients over all cost of advisory and execution services. The
RIA differs from the correspondent broker in that his/her registration is different and
only allows him to provide a certain subset of the broker's services to his client. A
registered FINRA member firm will generally have much broader powers than an
RIA. RIAs necessarily depend on third parties to provide execution services.
Providing them with a flexible platform that allows them to analyze their clients'
investment portfolios daily is critical to their success. In today's market, RIAs want
more from their clearing firm beyond just clearing, execution and custody services. It
is the peripheral services that clearing and custody firms, such as Legent, can offer
that add to the value proposition for the RIAs and the correspondent broker dealer.
Legent's platform of products and services provides the necessary tools for both the
RIA and traditional broker.
For purposes of the Business Plan, management has translated the growth in new client additions
and partnering objectives into a projected number of new correspondent client additions as
shown in the following table - Expected case - New Correspondent Growth
6
. New
correspondent clients have been labeled as Profile A, Profile B or Profile C correspondent types
which based on characteristic performance metrics, such as numbers of trades, accounts, margin
lending and customer credits and debits would provide for annual revenues to Legent of
approximately $2.4 million, $600,000 or $100,000, respectively. See Growth Strategies for
further description.
6 A single customer addition may represent multiple Profile A's, B's or C's based on their actual size. For instance,
Legent signed a large client in December 2008 that would actually represent six (6) Profile A correspondents based
on its anticipated net revenue contribution. As such, management is confident it will meet or exceed its projected
revenues through new correspondents as several new correspondents are likely to represent multiple new customer
additions using the prototype classifications in this business plan.
2738
Page b of48
Legent Clearing Business Plan
Confidential
mSTORY AND OWNERSHIP OF THE COMPANY
Company Founding
Legent was formed by Mr. Guy Gibson, current Chairman of United We stem Bancorp, through
the 2002 acquisition of the securities clearing division of Kirkpatrick, Pettis, a fIrm which began
clearing operations in 1925, from Mutual of Omaha. Mr. Gibson controlled Legent from June
2002 until February 2005, whereupon Legent was sold to Legent Group, LLC, a company
controlled by Mr. Henry C. "Ric" Duques, the former Chairman of the Board of First Data
Corporation. Legent's mission was to offer broker/dealers an independent clearing fIrm focused
exclusively on the unique needs of correspondents. As clearing firms started to consolidate,
Legent's independence and ability to provide highly flexible, customized solutions for its
correspondent customers future growth and 'an expanding client base.
Legent Uses Partner Strategy to Attract Large Clients
Since its founding, the Company has grown by signing up numerous new accounts, particularly
those providing net annual reveilues of $100,000 to $200,000 per correspondent client. 'While
this approach allowed the Company to add many smaller clients, securing larger clients was a
constant challenge. In effort to attract such clients, Legent leveraged its independence and began
offering a more partner-like relationship that went beyond a typical vendor client relationship.
This partnering approach has helped Legent add several large correspondents over its history, as
well as permit many ,small starting ftrms to grow through innovative product offering and
services into signifIcant industry participants today. Examples of some of these correspondent
clients (in terms of trades processed and number of accounts under management) included
optionsXpress, TradeKing, Success Trade, My Stock Fund and Newbridge Sec'urities.
Legent Faces Challenging Financial Markets
The clearing business is sensitive to fInancial market conditions, and Legent's business suffered
sharp downturns in revenues and profIts when the credit crisis in mid and late 2008 triggered
significant drops in the equity markets. From June 30, 2008 to June 30, 2009, equity market
indices declined from signifIcantly with the. Dow' Jones Industrial Average (the "DJIA")
decreasing 42%, the Standard & Poor's 500 Index down 47% and the NASDAQ Composite
Index down 45%. As all indices continued to decline, the DJIA closed below 8,000 for the first
time in almost six years and was 8,776 at the close of trading on December 31, 2008. Trading
volume remained active with average daily volUme in the second quarter of 2009 on the New
York Stock Exchange increased 35% over the same period for the prior year. However, trading
for some securities, particularly margin accounts decreased substantially, thus reducing a
significant component of Legent's typical revenue stream. In addition, historically low interest
rates had a negative impact on revenue from margin balances as well as revenue from money
market and wealth management services ..
. The reduction in revenues created operating losses for the Company. In response to these losses,
Legent developed a plan to reduce non-critical expenditures, restructured their base margin
lending rates and restructured certain costs that were shared with vendors and partners. In

Legent Clearing Business Plan
Confidential
addition, the Company took firm wide base payroll reductions and instituted other cost saving
initiatives. As a result of these measures Legent has been able to demonstrate net operating
profitability that began in November 2009.
Legent Continues Adding New Correspondents
In addition to restructuring certain costs, Legent has signed five new correspondents since
December 2009. The Company's pipeline of prospective correspondents remains strong, with a
high potential for nine new additional correspondents and another seven correspondents that
could potentially be signed before the end of 2010. These new prospects potentially could
represent an additional $3.4 million of net annual revenue, 11% of the Company's current
revenue run r a t ~ . In addition, Legent is currently in discussions with two larger correspondent
firms that could represent $5.7 million of net revenue
7

Management projects the combined impact of its recent cost restructuring and addition of new
correspondents, will enable the Company to generate significant operating profits in fiscal year
2010.
Company Ownership
Currently, Legent is wholly owned and the principal subsidiary of Legent Group, LLC.
Incorporated in Delaware, Legent is headquartered in Omaha, Nebraska. Legent Clearing is a
member of FINRA and is subject to state, federal, SEC, and FINRA regulations. The Legent
Group, LLC's current ownership is comprised of the following individuals and institutions
shown in the table below.
After the acquisition, Legent will be a wholly-owned operating subsidiary of United Western
Bank.
7 Source: Company data - Pipeline report dated Apri112, 2010
274L
Page 96148
Legent Clearing Business Plan
Confidential
Account Management
The Legent Cash Plus Account (LCP A) provides the account holder with a host of features and
enables the correspondent client to consolidate investment activities and traditional banking
services into one account. For idle cash balances, account holders may choose to invest to a full
menu of money market funds or insured deposit accounts. The LCP A also provides the
convenience of full banking services including checking, a choice of a Visa Gold or Platinum
ATMIDebit card with Visa-provided protection and privileges, and direct deposit and ACH
(electronic funds transfer) capabilities. Monthly statements are provided, either in electronic
form or paper, showing all investment activity and banking transactions. The Bank will provide
these bank services prospectively after the acquisition.
Dividend Reinvestment Plan - Clients have the option of automatically reinvesting cash
dividends for eligible securities which include domestic equities including ADRs, high volumes
and liquid issues, and most securities listed on the NYSE, AMEX, and NASDAQ.
Money Market Deposit Accounts - Clients can elected to move all of their free cash to one of
Legent's Money Market Portfolios or a FDIC insured account through Legent's Money Market
Deposit Account program managed and administrated by Deutsche Bank Trust Company
Americas (DBTCA). United WestemBank intends to replace DBTCA with its own managed
program after the acquisition.
Asset Management
EnvestNet - Through EnvestNet, Legent provides complete end-to-end, web-based platform for
all the fee-based asset management account needs and advisory service businesses. EnvestNet
allows an advisor to automate their entire business (marketing and client acquisition, portfolio
monitoring, client statements, rebalancing and performance reporting). This end-to-end solution
integrates the most advanced investment products and services to help the advisor grow and
manage their practice.
Wrap Account Platform - Wrap Account is a fee-based account billing system that automates
the process of calculating managed account fees by specified parameters set at the account level.
Features cover client invoices, debit advices, automatic fee posting to client accounts, separation
of manager, representative, and brokerage firm fees, and automatic or manual fee approval
process. The Legent Wrap Platform can also be used to establish asset allocation models to
balance positions held in . correspondent client wrap accounts. Features of Legent's allocation
and rebalancing software include variable rebalancing parameters, display summaries for all
managed account models, automatic trade suggestion as defined by allocation parameters.
What Makes Legent Different
The biggest difference between Legent and other clearing firms is customer service. Often
securities clearing services are viewed as a commodity product with large clearing firms
providing a "one size fits all attitude and approach". Small correspondents often take a back seat

Legent Clearing Business Plan
Confidential
to the needs of the larger correspondents which can be the clearing company's parent
corporation. As such, expectations and standards of service are low for many clients.
Legent Clearing, on the other hand, seeks to deliver a very high level of customer service and
flexible clearing offerings that are truly custom-fit to each specific firm. Management believes
client satisfaction leads to retention and long standing relationships. In order to deliver high
levels of customer service, Legent has created several process and capabilities, many of which
are unique to Legent. They include:






Direct Access to Operations - Legent offers "Go Direct" which allows correspondents
. the option of having direct access to operational departments for questions or issues
that can typically be resolved in one phone call. It offers correspondents the
opportunity to speak with a subject matter expert and provides an immediate
response.
Direct Access to Legent Executives - In addition to operations personnel, correspondents
can have direct access with Company executives including CEO Chris Frankel and
President Ray Maratea. Prospectively after completion of the acquisition, this level of
service will continue and be enhanced with the addition of Jeff Sime, as Chief
Operating Officer.
Issues Tracking System - Legent provides call tracking to enable Legent employees to
input correspondent-reported issues into a fully-customized customer service
database. Each issue is time stamped and assigned a tracking number, category,
priority, and "owner" who is notified via email and who follows a process for
resolution and disposition reporting.
Experienced Client Service Department - Legent provides professionals with solid
industry backgrounds with critical decision making and problem solving skills to
fonn a foundation of confidence in Legent's ability to provide a consistently high
standard of service.
Dedicated Relationship Management - Legent takes a consultative approach in helping
correspondents adapt to changing economic and demographic conditions.
Relationship manager's work with correspondent clients on strategies to attract and
retain clients, recruit sales professionals, reduce expenses, optimize productivity,
increase revenues, and ensure Legent offers the right products and services to help
correspondent clients to achieve their business objectives.
Streamlined Conversion Process - Legent has created a streamlined process to ensure that
the transition from another clearing firm goes as smoothly as possible. Legent's
conversion team consisting of employees from Client Services, Relationship
Management and Operations who work with correspondents to ensure that the
conversion experience is a positive one for their correspondent clients, the
correspondent and correspondent employees.
t

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00
r
Legent Clearing
Organization Chart
t
DaVid Brant
CFO
,
Lee Slaffortl
VP/CTO


n :;:'-j4'Jfl! =1(""
.-
Chris Frankel
CEO

Craig Black Ir:;! II David JaIYIB
EVPICCO H EVP/Corporate Counsel
.
Human
Resources
IT
" CompllBnce
Accounting' 11--.
Rnance 8,-,
Inlemal Audit
KeVin DaniBls
Chief Credit Officer
Tuesday, June 22, 2010
"'
Relationship
Management
Client Services
RByMaratea
President
Operations
Project
Management
Page 1

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an
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fIJ
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i
Legent Clearing Business Plan
Confidential
gives fmancial advisors the ability to check market information easily while viewing
client accounts; view representative books,instantly review unrealized/realized gains
and losses, as well as generate reports. Beta is also utilized by Wells
Fargo/Wachovia, Stifel Nicolaus, and several other large brokerage firms.
ThomsonOne - Thomson One product brand includes wealth management, investment
banking, investment analysis, investment management product offerings, . Thomson
One is currently used on over 23,000 desktops by clients such as Merrill Lynch,
Wachovia Securities, and host of other larger brokerage operations. ThomsonONE
offers solutions that combine rich, comprehensive, must-have global content and
intuitive tools specifically configured for key financial customers. Real-time and
historical data, research, estimates, fundamentals, news and more - such as Reuters,
Datastream, Worldscope, Investext, and SDC - are delivered directly to the client's
desktop in an integrated, customizable view.
SunGard (Automated Financial Systems)
Founded in 1996, Automated Financial Systems Corporation ("AFS") is a niche player sitting
between the correspondent clearing firm and the financial advisor's desktop. Half of AFS's
business is supporting clearing firms who re-sell InvestPoint to their clients. AFS is owned by
SunGard Systems Inc. a $13 billion software and processing solutions business focused on
fmancial services, education, and the public sector. AFS is known within the industry for having
robust trading functionality.
Investpoint - Legent offers clients AFS' InvestPoint, through Legent's private label
solution, Legent Investpoint provides three distinct offerings (Silver, Gold, and
Platinum) which are affordable, browser-based broker workstations that meets the
needs of independent registered representatives, registered investment advisors, and
full service retail brokers. Legent's Investpoint features include straight through
processing of equities, options, mutual funds, money funds, and fixed income
products while advanced trading functionality including basket trading, block trading,
and average cost modules.
Envestnet
Founded in 1999, Envestnet Asset Management is the largest independent investment platform
for fee-based advisors. The company delivers separately managed accounts, multi-manager
accounts, mutual funds, exchange-traded funds ("ETF's"), stock baskets, and alternative
investments as well as other fee-based investment solutions to independent financial advisors
through a unified Web-based platform. Envestnet's investment offerings are supported by a
proprietary technology platform that delivers customized Web sites and comprehensive reporting
capabilities to investment advisory firms across the country.
Legent Clearing Business Plan
Confidential
REGULATORY COMPLIANCE
The securities and commodities industry is highly regulated. The SEC is responsible for
implementing, interpreting, and enforcing the federal securities laws, and.serves as a supervisory
body over all national securities exchanges and associations. Broker-dealers are subject to
regulation under both the federal securities and commodities laws, as well as the rules of self-
regulatory organizations ("SROs"). These SROs include all the national securities and
commodities exchanges, FINRA (formally the NASD) and the Municipal Securities Rulemaking
Board (the "MSRB"). Subject to oversight by the SEC and the Commodity Futures Trading
Commission (the "CFTC"), these SROs adopt rules that govern the industry and conduct
periodic examinations of the operations of Legent Clearing. The FINRA has been designated as
the primary regulator of Legent Clearing. In addition, Legent Clearing is subject to regulation
under the laws of the 50 states, the District of Columbia, and Puerto Rico, in which it is
registered to conduct securities business.
Currently Legent's maintains a compliance department headed by Craig Black, Executive Vice
President. Legent's compliance capabilities are further enhanced through its technology
alliances with SunGard AFS and Thomson Financial.
As a result of Legent's 2007 FINRA exam, Legent Clearing was fined in the amount of $350,000
for failing to design and implement an adequate AML program in accordance with the Bank
Secrecy Act.
In November 2009, Legent retained KAPCO Group, a third party broker-dealer compliance firm,
to conduct an Anti-:Money Laundering Audit of Legent's AML program. KAPCO confined its
review to AML related functions that occurred during portions of calendar years 2008 and 2009,
beginning with the close of Legent's last 2008 audit (November 12, 2008) and until the close
business November 14, 2009. KAPCO concluded that the fmn has addressed all of the
deficiencies noted in the last independent audit as well as the issues highlighted in the 2008
FINRA examination. In addition, Legent was in the process of implementing and enhancing
certain AML processes and procedures highlighted by KAPCO during its audit. KAPCO also
concluded that Legent's AML Compliance Program includes the elements required by the
current governmental regulations and FINRA, that no material deficiencies were identified in
any part of the AML Compliance Program, that Legent implemented the required components of
its AML Compliance Program, including a Customer Identification Program ("CIP") and the
self-imposed enhancements and that there were no material deficiencies in the implementation of
Legent's AML Compliance Program. Since the KAPCO initiative, FINRA has conducted an
onsiteexam ofLegent in May 2010, with no material findings stated in the exit interview.
While Legent has taken remedial action on previously identified regulatory issues; of equal
importance will be the process to eliminate any BSAI AML findings and apply all BSAI AML
best practices for the industry, as well as those best practices adopted by the Bank, going
forward. Mr. Frankel's leadership will prevent further missteps with regard to BSAI AML issues.
In addition, the reinsertion of Mr. Sime as Chief Operating Officer for Legent Clearing should
assist in alleviating any BSAI AML issues prospectively. The fact that Legent has experienced
repeat violations adds additional complexity and importance to the process. A full BSAlAML
Legent Clearing Business Plan
Confidential
Risk Assessment will be completed by the Bank's Chief Compliance Officer, Mr. Tom Loveday,
and a plan of action will be formalized to integrate Legent under the Bank's BSAlAML policy
and procedures,
STRATEGIES FOR GROWTH
Overview
Legent seeks to grow the Company through the following core growth and marketing strategies:
Continue penetrating target market accounts
Partner with larger correspondent clients
Enhance marketing and visibility of the Company
Enhance or expand technology capabilities
Continue Penetrating Target Market Accounts
Legent's core growth strategy has been direct sales to its target market. Legent's target market
of small and middle market companies number approximately 4,900. The Company's currently
has a three person sales team led by Ray Maratea. The Company approaches these target
companies through attendance at trade shows, direct mailings, direct phone calls, meetings, and
product demonstrations and Legent's annual conference for correspondents and perspective
clients. Sales professionals are paid a base salary plus commission that is based on the size and
duration of the sales contract. Over the last year, management has changed its commission
structure to further encourage sales personnel to secure long term contracts. Since 2006, the
Company has signed 79 new client contracts, many with the Company's largest correspondents.
Continued success with direct sales will be based on a constant commitment to direct sales and
prospecting. In 2009, Legent contracted with 15 new correspondents and has signed up five new
correspondents through April 2010.
Based on its growth plan, Legent management projects adding 31 net additional small, middle
market and large correspondents over the next four years. Given the current sales team
productivity over the last 12 months, management is confident it can achieve the projected new
client additions.
Partner with Large Clients
As an independent clearing frrm, Legent's financial performance and profitability is aligned with
its correspondent client fmancial health and the correspondent's commitment to the growth of
their business. To attract correspondents with significant clearing needs and trading volume,
Legent has pursued a strategy of partnering with its larger correspondents. This 'partner'
relationship has taken various forms, but the intent is to go beyond the typical vendor-client
relationship and offer additional resources, access and transparency. Various partnering
approaches utilized or considered by Legent and its clients have included:
Capital Investment by Legent - On occasion Legent has made capital investments in
the form a loans in new correspondent clients. Through this arrangement, Legent
2154
Page 22 of48
Legent Clearing Busines$ PIan
. Confidential

makes a loan to the correspondent client use to fund growth, or to cover the costs to
convert from a. competing clearing fum or build capital reserves. In return, Legent
obtains a long term contract and is repaid through future (increased) transaction
charges or as a separate amortizing loan. This approach has been attractive to fast
growing correspondent firms with limited access to capital. Examples of capital
investments that Legent has made in the past include investments ill TradeKing,
Newbridge Securities Corporation and Jesup & Lamont Securities Corp.
Participation in Client Steering Committee - In addition to the partner opportunities .
identified above, Legent is also inviting select clients to p&1:icipate in its Client
Steering Committee. The Client Steering Committee consists of fourteen (14)
correspondent client firms, both large and small clients. The steering committee was
established to proactively address the technology and service needs of Legent's
clients.
Legent's management sees this partnering strategy as a further extension of its efforts to provide
clients unequaled service. This strategy may become even more appealing as the market is likely
to further consolidate into a handful of very large players.
Enhance Company Visibility and Marketing
Over the last year, Legent has been primarily focused on direct sales and growth from direct
sales. While the Company has participated in trade shows, industry events and advertising in
industry select publications the Company believes it can significantly increase the exposure of
Legent, through more frequently advertising, press releases, and article placements in industry
publications.
Each year the Company holds an industry and client conference in Florida for its correspondents
and current prospects. The conference was held in May this year and feedback from the event
has been very positive. Legent management also plans to leverage the significant experience;
contacts, and reputation of its majority owners to further enhance the Company's reputation.
Selectively Expand Technologies
The Company continually makes investments and enhancements to its technology and service
offering. In 2008 and 2009,Legent enhanced its network infrastructure and database
management capabilities. Going forward, Legent will continue to look to develop, acquire, or
partner to provide the capabilities correspondents desire in order to attract new clients and
advisors. Attesting to this initiative, Legent recently formed a partnership agreement with Fetter
Logic to offer enhanced report functionality encompassing operations, finance, trading, and
compliance. As evidence by most of the industry, the Company is progressing towards an a
redesign of its paper based statements and confirms systems, with the full implementation of e-
statements and e-document for its correspondent clients that will provide significant cost savings
for the Company and correspondent clients. The Company has developed and proceeded with a
limited launching of its trade compression platform that will enable Legent to expand its product
27SS
Pagerrof48
Legent Clearing Business Plan .
Confidential
functions for broker-dealers 10 years ago, and there are now about 20
11
The barbell-shaped
clearing industry--with large and small firms on opposite ends--has grown more extreme. Bank
of New York Mellon Corp.'s Pershing unit still services the most correspondents, with more than
900 correspondents, compared to 650 in 2 0 0 0 ~ but Ii barrage of acquisitions have created a
handful of super-clearers, such as National Financial Services, Penson Worldwide Inc, JP
Morgan Clearing Corp, First Clearing and Goldman Sachs to name a few. Consolidation within
the industry is continuing as evidenced by Penson Worldwide Inc announCement that it has
entered into an agreement to acquire Ridge Clearing and Outsourcing Solutions Inc.
The affect of consolidation has been the reduction of choice for clients as well as an increased
trend of mandatory conversions as the operations of different clearing firms are consolidated,
which in turn creates opportunities to supplant long standing relationships. Historically, client
relationships have been hard to . break because changing securities clearing firms often takes
several months and can wreak havoc within an organization. Consequently, few brokerage and
investment firms are likely to switch unless forced to or services is poor. Faced with a
mandatory conversion, firms are more likely to consider options beyond simply going with the
acquiring clearing fum.
Increasingly Niche Focused Players - As a result of intense consolidation, smaller firms are
forced to become more niche oriented and differentiate their offering. Adam Honore, an industry
analyst with Aite Group, states:
"Clearers are likely to continue to attract most of their business from their areas of
concentration. Over the years, competition and technology advances. have turned
the actual clearing function - - handling a transaction from the time it's executed
until it is settled, and providing related reporting and financial statement into a
commodity. Plummeting clearing fees have prompted fJIJils to build out their
ancillary services to raise those fees or to tack on additional charges. The expense
associated with technology development has, in turn, led clearing firms to identify
broker dealer niches to focus on. Firms will need to continue to target their
segments and be ready to really add value
12
."
Legent's management believes that unequaled responsiveness and service is likely to win the
more correspondents than making aggressive investments to anticipate future technology needs
and changes.
Banking Shake Up Driving New Client Needs - The shake-up in the banking and financial
markets is causing more correspondents to ask their clearing firm to help them survive the
financial climate. Trading volumes are lower and correspondents are looking for ways to
11 Investment Advisor, January 2010
12 Securities Industry News, May 2008
Legent Clearing Business Plan
Confidential
manage costs and improve their competitive position. The response is tighter cost control,
increased technology innovations and innovations in service offerings.
13
This trend is likely to only fuel already increasing demand for more customized solutions and
added services. As an example, to attract new brokers, many correspondents are offering
producers the platforms necessary to work as either an Independent Broker Dealer or Registered
Investment Advisor. To support these operations, some ftrms are utilizing two clearing firms to
serve both types of professional. Firms utilizing both models, often termed the "hybrid
segment", appears to be growing at a signiftcant rate. According to a report issued by Moss-
Adams LLP and Pershing in 2006, there is a growing acceptance for this "hybrid model" that
combines commission-based and fee-based platforms. The hybrid segment is large and thriving
with an estimated $6.3 billion in annual revenues and average operating proftt margin for
"hybrid firms" doubled from 8.9% to 17.6% from 2002 to 200414. Legent has correspondents
that dual clear
lS
and management embraces this practice. With superior performance, Legent is
conftdent such business will be maintained or grow by taking the clearing activities from the
. fi . 16
competmg mns over tIme .
Independent firms luring more and more big producers - The recent shake ups at major banks
and wire houses likely to continue fueling a flight of big producers to smaller niche firms. As an
example, the three biggest custodian banks, Charles Schwab, Fidelity, TD Ameritrade report that
since 2000, the assets they held for independent registered investment grew by nearly $323
billion or almost 16% per year. By comparison, assets at the three largest employee-based wire
houses, Merrill Lynch, Smith Barney, and Morgan Stanley, grew by $224 billion in the same
timeframe, or at a rate of just 2% annual growth 17. .
This higher growth rate for custodian banks, illustrates a recent increasing flow of individuals
looking at either setting up their own broker dealer or advisory group, or looking to leave wire
houses to join independent ftrm where they feel they'll have greater control.
There are many reasons why advisers leave wire houses and other employee firms. They are
dissatisfied with conflicts of interest between their employer firm and their clients; they are
dissatisfied with fees they charge clients; they do not like the products they are asked to sell; or
they are frustrated with their inability to get access to products they want to sell. At the same
time there are three main attractions with going independent: the ability to cash out by selling the
broker's business upon retirement rather than giving the client book to the employer; the ability
13 Source: "Bank Shakeup Recast Correspondent Clearing; Crisis Shines spotlight on widening services ", Securities.
News 2009
14 Source: "Dual-Registered Advisors - Opportunity Knocks ", Moss-Adams LL and Pershing LLC, May 26, 2008
15 Dual Clearing refers to correspondent firms that have clearing arrangements with more than one clearing finn.
16 Source: "New Menu Adds a la Carte Options, The Clearing Industry is moving towards increased customization,
multiple relationships and dually registeredfinancial advisors", Research, April 2006.
17 Source: "Jumping Ship," On Wall Street, June 6, 2006
Legent Clearing Business Plan
Confidential
to operate a fee based, advisory practice rather than having fee-in-lieu of commission brokerage
relationships, and the all-important higher payout
l8
. As discussed in Growth Strategies
(Selectively Expand New Technologies) Legent is committed to adding the technologies,
services, and products that correspondents need in order to attract new clients and advisors .
. Competition Overview
Legent Clearing competes directly with national and regionalfull-service clearing rums. A key
distinction. to Legent's ability to compete effectively is whether the competitive clearing firm is .
independent or owned by a larger financial institution. Detailed below is a list of the top clearing
firms in the industry, based on their number of clients. Of the top 16 institutions listed only
Penson Worldwide, Ridge Clearing, and Legent are independent firms. .
1.llg('( ()llr'IHllltiell( (ILIIIIIL! 111111'
'" I II' I ~ 1 I I ". 1111 L 1 I
[\ 111k ( 1'-.- 11I11 I I l 11,-, I '\ III ~ ( l ~ , 1 I I I llll..-111
1 Pershing LLC 900 9 First Clearing LLC (Wells Fargo Advisors) 130
National Financial Services LLc (Fidelity Ridge Clearing and Outsourcing Solutions
2 Investments) 315 10 Inc. 116
3
Penson Worldwide Inc 2 300 11 Sterne Agee Clearing Inc. n5
4
JPMorgan Clearing Corp. 232 12 Mesirow Financial hlC 85
5 Southwest Securities Inc. 201 13 First Southwest Co. 75
6
Goldman Sachs Execution wld Clearing LP 185 13 Legent Clearing LLC 75
7. RBC Correspondent Services 170 14 Jefferies & Co. Inc. 48
8 Wedbush Morgan Securities mc 160 15 Raymond Jmnes & Associates .38
I Other correspondent clearing finIlS not listed above include Interactive Brokers LLC, MF Global Inc, Terra Nova Financial LLC and Triad
Securities.
2 Penson W prldwide has entered into an agreement to acquire Ridge Clearing and Outsourcing Solutions Inc.
Source: Investment News, "Us Clearing Firms Ranked by Broker-Dealer Clients," December 12,2009.
18 Source: "Jumping Ship: The World of Independent Firms is Luring More and More Big Producers." Tony
ChapeZle, On Wall Street, June 2006 pages 31-33.
P ~ ~ f 4 8
Legent Clearing Business Plan
Confidential
MANAGEMENT TEAM
Overview
Legent Clearing's management" team is comprised of a cohesive, experienced team of
professionals. Collectively, Legent's team of seasoned managers has over 100 years of
combined experience in clearing business operations, information technology, and regulatory and
compliance issues.
Christopher Frankel-Chief Executive Officer
Christopher Frankel serves as the Chief Executive Officer of Legent Clearing LLC. Mr. Frankel
served as the Chief Operating Officer of GunnA11en Financial, Inc. from July 2006 to 2009. Mr.
Frankel is a seasoned fmancial service professional with more than fifteen years of experience at
,a senior management level. From 1994 to 2006, Mr. Frankel has served in various management
capacities with the Sterne, Agee & Leach Group. Prior to joining GunnAllen Financial, he served
as Chief Executive Officer of Sterne, Agee Capital Markets, Inc., and Chief Executive Officer of
Sterne Agee Financial Services, Inc. While at Sterne Agee, he served as the Chief Executive
Officer of two of the firms' broker dealers and" President of the third. Mr. Frankel has extensive
industry experience in correspondent clearing, wholesale execution, bank securities operations
and institutional sales. He began his career at Alex Brown & Sons, Inc. He is a frequent speaker
on securities industry matters specifically pertaining to securities operations and bank securities
activities. Most recently, in April 2005 and 2006 Mr. Frankel chaired the Securities Industry
Association Independent Firms Conferences in Atlanta, Georgia, and Ft. Lauderdale, Florida. He
has also been a member of both the SIA Independent Firms Committee and the Securities
Traders Association Market Structure Committee. Mr. Frankel is a graduate of Florida State
University.
Jeffrey Sime - Chief Operating Officer (to be appointed at closing)
After the Bank's acquisition, Mr. Sime will serve as the Chief Operating Officer of Legent
Clearing LLC. Mr. Sime has over 19 years of experience in the securities industry. He co-
founded Legent Clearing LLC and served in various executive officer positions, most recently as
its President, from 2002 through 2007. Prior to Legent, for over nine years, Mr. Sime served as
Chief Financial Officer, Chief Administrative Officer and Financial and Operations Principal for
Kirkpatrick Pettis, the broker dealer subsidiary of Mutual of Omaha Insurance Company. His
responsibilities at Kirkpatrick Pettis included the overall supervision of operations,
accounting/regulatory reporting, risk management, "information technology and human
resources. He started a clearing division at Kirkpatrick Pettis. Most recently he was the
President of Nunami Services LLC, Nunami provided outbound, low latency, order routing
services for other broker dealers and exchanges including the New York Stock Exchange. Mr.
Sime began his career at Deloitte and Touche conducting audits in the financial services area.
p a g ~ ~ ~ ' & f 48
Legent Clearing Business Plan
Confidential
Raymond Maratea - President
Ray Maratea oversees all operations, business development, client services, relationship
management and marketing/sales activities for Legent. Mr. Maratea has over 35 + years
experience in executive management within the brokerage clearing services industry. Ray served
as Senior Vice President and Managing Director of Operations for BNY Clearing Service LLC, a
Bank of New York Company, Senior Vice President and Director of Operations, EVEREN
Clearing, Senior Vice President, Branch Administration, Security Pacific/Bank of America. His
background encompasses all aspects of operations, sales, and administration. Ray serves as a
member of the Board of Regents for Lewis University. .
.David Brant - Chief Financial Officer
David Brant oversees various financial management, accounting and cash management
functions. Prior to joining Legent Clearing LLC, Mr. Brant served as Vice President and
Controller in the Independent Brokerage Group at Wachovia Securities, which included the
correspondent clearing division, First Clearing, LLC. He is a Certified Public Accountant and
has over 10 years of securities industry experience.
Craig Black - Executive Vice President, Risk/Compliance
Craig Black oversees compliance, risk management and internal audit functions. Mr. Black .
brings over 30+ years of. securities industry experience to Legent. Prior to joining Legent Mr.
Black served as executive vice president and managing director of BNY Clearing Services. His
experience covers all aspects of clearing operations as well as trading, risk management and
compliance.
David Jarvis - Executive Vice President and General Counsel
David Jarvis is Executive Vice President and General Counsel of Legent Clearing LLC, and a
member of its Senior Management Team. David was born in Detroit, Michigan in 1963. He is a
cum laude..graduate of the University of Michigan and earned his Juris Doctorate in 1990 from
the University of Detroit School of Law where he was an associate editor of the National Jewish
Law Review. Prior to joining Legent, David was Executive Vice President and General Counsel
of Gunn Allen Holdings, Inc., the parent of a diversified fmancial Prior to Gunn
Allen, David spent over five years as a Senior Vice President of Wachovia Securities (n/kJa
. Wells Fargo Advisors) where he was the de facto General Counsel to Wachovia Securities
Financial NetWork and additionally supported First Clearing LLC, Wachovia's clearing firm.
David began his legal career with law firms in Michigan and New York, where his practice
focused, almost in entirely, on securities litigation,. securities regulation and securities arbitration.
David is a frequent author, speaker and commentator on matters impacting the financial services
industry.
Jean Luther - Senior Vice President, Operations
Jean Luther oversees all of the operational units including execution services, P&S, settlements,
margin, asset management, mutual funds, corporate actions, stock loan, tax reporting and IRAs.

Legent Clearing Business Plan
Confidential
Legent Forecast and Merger Model
This Legent ForecaSt and Merger Model (The "Model") is structured as quarterly time frames
and consolidated to annual reports. As contemplated in the Purchase Agreement, we have
assumed that Legent is acquired as an operating subsidiary of the Bank and adopts a fiscal
calendar year-end after the transaction closing. Financial statements of Legent Clearing LLC are
summarized below for the period six months ending December 2010 and twelve months ending
December 31,2011,2012 and 2013.
Legent Clearing Business Plan
Confidential
Balance Sheet Assumptions (2010- 2013)
Assets:
Assumption for the opening balance sheet and transaction adjustments are discussed above.
Cash in banks and on hand represents available cash and short term marketable securities. This
balance is projected to be held constant at $1 million over the projected period.
Cash Investment from Parent is a $10 million equity investment from UW Bank in the form of
cash.
Special Reserve Bank Accounts represents various funds held for clients that represent excess
credits over debits and segregate funds for Securities Exchange Act of 1934 (the "Act") section
15c3-3 purposes. Starting in the third quarter, due to the departure of TradeKing business and
Legent initiatives, no additional Special Reserve Bank Account balances are required. Minor
balances are shown in 2012 and 2013 as credit balances exceeds debits balances by 3%.
Receivables from Customers include amounts due on uncompleted transactions and margin
account balances. The majority of these receivables are represented by margin lending activity of
Legent. Projected balances are anticipated to increase as new correspondent client firms are
added, organic growth correspondent firm accounts and trading volume increases.
Broker and Dealers represent receivables from brokers, dealers and other clearing organizations.
Balances for this account are projected to be held constant over the projection period.
Correspondent Notes Receivable represents the unamortized balances attributable to
correspondent performance notes and forgivable notes held by the Legent. The principal on these
notes amortizes over a projected amortization schedule that is tied to either fixed minimum
payments of prinpcial and interest or principal and interest payments based on the level of
trading activity for the correspondent client.. The amortization schedules are dependent on
specific note provisions.
Good Faith & Other Deposits represent various receivables generated out of the operations of the
business. Balances for this account are projected to be held constant over the projection period.
Net Property represents furniture, equipment, leasehold improvements, internally developed
software and capital leases less accumulated depreciation. Going forward asset additions are
projected at $69,000 per quarter and matching quarterly depreciation expense. The balance is
projected to remain constant.
Intangible Assets represent the fair value of intangibles as determined by appraisal. Annual
amortization expense is assumed to be constant $682,000.
Securities Owned represents firm investments (U.S. T Bills) held by Legent and stock exchange
membership deposits. Balances for this account are projected to be held constant over the
projection period.
27.77
Page ~ 5 of48
Legent Clearing Business Plan
Confidential
Other Assets represent accrued interest receivable and various prepaid expenses. Balances for
this account are projected to be held constant over the projection period.
Liabilities and Members Equity:
Payables to customers, brokers and dealers, amounts owed on uncompleted transactions and
margin account balances. Historically these amounts have been between 80% and 95% of the
offsetting customer and broker receivables and special reserve accounts. Projected balances are
anticipated to increase as new correspondent firms are added and trading volume increases.
Future payable balances are projected at between 90% to 100% of the current accounts
receivable from customer balances and special reserve accounts.
Payable to Brokers represent balances payables to brokers, dealers and other clearing
organizations. Balances for this account are projected to be held constant over the projection
period.
Payable to Banks represent balances outstanding on existing debt. Legent currently has the two
lines of credit with commercial banks that are fully collateralized by customer securities. The
Model assumes that lines stay in place. These credit facilities bear interest at a rate at 1.75%.
Other payables represent other various payables from the operations of the business. Balances for
this account are projected to be held constant over the projection period.
Other Accrued Liabilities represents other liabilities arising out of normal operations of the
business. For purposes of the Model this account is held constant.
Subordinated Notes show the balance outstanding at closing and the elimination of this debt by
the Bank contemporaneously with the transaction close.
Common Equity represents total capital and equity outstanding. Projected balances are based on
increases through contributions from income from operations.
Investment from the Bank Parent is offsetting equity entry for the cash investment made by the
Bank after the closing.
Regulatory Net Capital:
Legentis subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the
Securities Exchange Act of 1934. Legent, a member fmn of FINRA, is also subject to the rules
of FINRA, whose requirements are substantially the same. Rule 15c3-1 requires that aggregate
indebtedness, as defmed, not exceed 15 times net capital, as defined. Rule 15c3-1 also provides
for an "alternative net capital requirement", which Legent have elected. It requires that minimum
net capital, as defined, be equal to the greater of $250,000 or two percent of Aggregate Debit
Items arising from client transactions. FINRA may require a member firm to reduce its business
if its net capital is less than four percent of Aggregate Debit Items and may prohibit a member
firm from expanding its business and declaring cash dividends if its net capital is less than five
percent of Aggregate Debit Items or less than 120% of its minimum dollar requirement. The net
Legent Clearing Business Plan
Confidential
capital position of Legent at May 30, 2010, and fiscal year ended June 30, 2009, June 30, 2008
and June 2007 was as follows:
Alternative Method Elected:
Lcgcnt Clearing LLC
SUllllll(W) Net C,IPlicli Po"itlOIl
(SOOOs)
31-May-10 2009
Net Capital as a perentage of .
agggregate debit items 7.91% 11.40%
Net Capital $ 13,046 $ 15,016
Less: Required Net Capital 3,299 2,662
Excess Net Capital $ 9,747 $ 12,354
June 30
2
2008 2007
11.57%
12.03% .
$ 21,187 $ 26,489
3,661 4,404
$ 17,526 $ 22,084
1 Information derived from unaudited statements of operations for Legent Clearing LLC.
2 Information derived from audited statements of operations for Legent Clearing LLC.
The Model assumes that after the transaction is closed the Bank will make a $10 million equity
investment in the form of cash into the Legent operating subsidiary. This will further enhance
Legent's excess net capital position. The table below shows the Model's projection of Legent's
15c3-1 net capital position through December 31, 2013.
Alternative Method Elected:
Aggregate debit items
Net Capital
Less: Required Net Capital
Excess Net Capital
Net Capital as a % of agggregate debit Items
Actual
I L'gt'HI (ILIII!1:,! I I {
"1l1lllllldl\ 1 l' ! \ . ~ l ( II It 11 Relllill 11kll1
(\ III IlJt'lIL...!I](Ic.j
Forecast Forecast Forecast
6 ME Dec 09 6MEJlIn 10 6ME Det 10 6MEDec 10
$ 154,748 $ 187,539 $ 137,057 $ 137,057
13,530 13,219 27,210 27,210
3,095 3,751 2,741 2,741
$ 10,435 $ 9,468 $ 24,469 $ 24,469
8.74% 7.05% 19.85"1. 19.85%
Forecast Forecast Forecast
6MEDte 11 6MEDeen 6ME Dec 13
$ 165,916 $ 183,614 $ 198,597
33,322 42,429 52,530
3,318 3,672 3,972
$ 30,004 $ 38,757 $ 48,558
20.08% 23.11% 26.45%
Q
2781
CONFIDENTIAL EXHIBIT G
Other Information
1. Brokered Deposits Issue
Currently, the FDIC is engaged in readdressing the question of which deposits should be
characterized as ''brokered deposits." This is an important issue to banks and thrifts since:
a. the classification of deposits on call reports and thrift fmancial reports affects the
amount of the FDIC insurance assessment;
b. capital market participants may view "brokered deposits" unfavorably; and
c. banks and thrifts that are deemed not "well capitalized" for any reason are unable to
accept, renew or rollover brokered deposits and such limitations may have an
adverse impact on the institution's liquidity.
The FDIC regulations are set forth at 12 C.F.R. 337.6. The Bank has received opinions
from outside counsel to the effect that its deposit relationships with Equity Trust, Legent
Clearing and others are not "brokered deposits" because the trust or securities clearing
companies who direct their client's deposits tothe Bank are not "deposit brokers" within the
limits of the rule. Recently, without publication of new rules or regulations, the FDIC adopted
the position that any party that places sweep deposits with a bank or thrift is a deposit broker,
and, in particular, for customer credit balances deposited with banks that are not well capitalized,
all such sweep deposit balances are treated as brokered deposits unless a specific waiver is
received from the FDIC. The FDIC's position has been outlined and summarized during the
FDIC's Rick Analysis Center telephonic seminar on December 10, 2009 entitled Brokered
Deposits and Interest Rate Restrictions. The seminar was presented in response to revisions to
the interest rate restrictions outlined in 12 C.F.R. 337.6 of the FDIC Rules and Regulations
which went into effect January 1,2010.
In March 2010,-at the request of the OTS and FDIC, the Company and the Bank prepared
a Uwhite paper" discussing why the Bank's institutional deposit relationships should not be
considered brokered deposits.
1
Despite the opinion of counsel and our arguments, on June 2,
2010
2
, the FDIC advised the Bank that the FDIC had determined that substantially all of the
Bank deposit relationships are "brokered deposits." In its letter to the Bank, the FDIC discussed
its determination that no deposit broker exceptions, including the "primary purpose exception,"
apply to Legent Clearing, and that therefore deposits from Legent Clearing customers through
Legent Clearing's omnibus account at the Bank should be considered brokered deposits. Legent
Clearing is a clearing and settlement broker, and its primary purpose is the settlement of
securities trades by its correspondent customers.
1 This white paper and associated opinions have previously been submitted to the OTS and the F'QIC and will be made available
upon request.
2 The FDIC letter is dated May 24,2010, but was received via a courier delivery on June 2, 2010, by the Bank.
2782
In response to the FDIC determination, the Bank: has applied for a waiver of the
r ''brokered deposit" rules until such time as it returns to well capitalized status while reserving its
right to contest the FDIC determination as to the classification of its deposits.
3
..
On June 15, 2010, the Bank announced its intention to acquire Legent Clearing, subject
to regulatory approval. Subsequent to the announcement of the proposed Legent Clearing
acquisition, Thomas Trujillo, Case Manager,DSC Risk Management, FDIC, Dallas, TX, asked
the Bank to outline for FDIC why the acquisition of Legent Clearing will assist the Bank in
reducing the amount ofbrokered deposits at the Bank. The Company and Bank responded to the
FDIC on June 28
th
in the attached memorandum - Acquisition of Legem Clearing and impact on
deposits with United Western Bank under 12 C.F.R. 337.6. The Company and the Bank presented
their positions on why the deposits generated by Legent Clearing should be deemed to be
deposits generated by the Bank itself. A copy of this memorandum is attached in this
Confidential Exhibit G.
Representatives of the Company and the Bank met with the FDIC's senior representatives
in Washington, D.C. on June 30, 2010 with regard to the FDIC determination letter received by
the Bank on June 2, 2010. A synopsis of the discussions and follow-on actions that the
Company and the Bank have undertaken are outlined in the letter to Office of Thrift Supervision
- Western Region from Paul Hastings, dated July 2, 2010 and attached in this Confidential
Exhibit O. As summarized in the attached letter, along with the Bank's intent to pursue its
appeal rights within the FDIC appeals process, the Bank has committed that it will at the same
time pursue a multi-step strategy to address the FDIC's preliminary determination and to achieve
compliance with the June 25, 2010 cease and desist orders issued to the Company and the Bank
(see discussion of cease and desist orders below). The commitment includes (i) seeking a forpml
waiver from the FDIC to perinit acceptance, renewal and rolling over of the newly-deemed
brokered deposits (the Company filed a waiver request June 10, 2010 with respect to certain
deposits the FDIC preUminarily determined to be brokereddeposits); (ii) undertaking a
significant capital raise by the Company so as to exceed the standards required in the cease and
desist order (the Company formally began these efforts in March 2010); (iii) restructuring its
operations pursuant to the Bank acquisition of Legent Clearing; and (iv) evaluating strategies to
gradually eliminate the newly-deemed brokered deposits that permit the Bank to operate as a
viable entity.
The FDIC's position ignores the plain language of the exception from the definition of
deposit broker, to wit:
12 C.F.R. 367 (a)(5) (il) the term deposit broker does not include:
(I) an agent or nominee whose primary purpose is not the placement of
funds with depository institutions;
As detailed in the ''white paper", all of the companies who direct client deposits to the
Bank are agents for those clients and are otherwise engaged in separate businesses (e.g., as
3 Prior to March 31, 2010, the Bank was a weUcapitalized institution.
2783
regulated trust companies or securities clearing companies) whose primary purpose is not the
placement of funds with depository institutions.
The Bank respectfully requests that the OTS and FDIC confmn that, upon the
consummation of the Legent Clearing acquisition, deposits of Legent Clearing customers placed
with the Bank will not be considered to be brokered deposits.
2. Capital Formation Initiative
The Company initiated discussions in late 2009 and retained Goldman Sachs & Co. on
March 23,2010 as a fmancial advisor to assist the Company in its analysis and consideration of
various financial alternatives available to it, and such other matters as the parties may agree
during the course of Goldman's engagement. Such financial alternatives and other matters may
include investments, acquisitions, divestitures, financial restructurings, liability management
transactions, public or private fmancings (including the offering of securities), mergers or other
business combination transactions, sale transactions involving all or a portion of the Company,
stock or debt repurchases, joint ventures, or other operations involving the Company.
The Company and Goldman immediately began implementing a plan to raise capital for
the Company by June 30, 2010, as agreed to by the Company in its Memorandum of
Understanding with the OTS, dated December 10,2009 and later under the Order to Cease and
Desist issued to the Bank. The process included the development of a data room for review by
prospective investors, the gathering and posting of confidential information pertaining to the
Company and the Bank., the development and preparation of operating models to reflect various
fmancial scenarios and proforma capital formation impacts to the Company and Bank, the
preparation of management and company presentations materials for investor road show
meetings, identification of prospective investors and the definitive scheduling of investor
meetings.
The Company and Goldman conducted numerous meetings through April 2010 to
develop the required information and, in addition, identified a list of prospective investors which
included 39 potential private equity finns, eight hedge fund investor partners and six potential
blind pool acqUisition partners. Through initial outbound calls to potential investors, Goldman
and the Company developed a road show meeting schedule and pre-planned conference calls that
commenced on May 25
th
, 2010 and that continues presently through the date of this Notice. The
Company's management conducted 19 meetings and numerous conference calls with investors
that indicated levels of interest. The meetings have been well received and many investors have
indicated high levels of interest, especially in light of the fact that the Bank has entered into a
Purchase Agreement to acquire Legent Clearing.
The Company and Goldman have distributed requests for indications of interest inviting
potential investors to provide non-binding indications of interest for an anchor investment in the
Company, with a response date of July 12, 2010 ("Bid Letters"). The Bid Letters disclose that
the Company is seeking to execute a minimum offering of $200 million, but is contemplatinga
larger offering to execute its growth strategy. Investors were requested to indicate their
respective level of investment. The potential investors continue to perform due diligence and the
2784
Company is continuing to participate in due diligence conference calls covering all aspects of the
Company and the Bank. and their operations and prospects for the future.
As discussed below under aspects of the cease and desist order with the Bank, the Bank
and the Company each submitted capital plans to the OTS which detail under three different
scenarios how the Bank. achieves the capital ratios as mandated by the cease and desist order.
3. Status of Any Other Issues Connected with Cease and Desist Order
Effective June 23, 2010, the Company and Bank, to avoid the time and expense
associated with an administrative proceeding, each entered into a Stipulation and Consent to the
Issuance of Order to Cease and Desist with the OTS whereby the Company and Bank waived
their rights to an administrative proceeding and consented to the issuance by the OTS of separate
Cease and Desist Orders against the Company (the "Company C&D Order") and the Bank (the
"Bank C&D Order").
Among other things, the Company C&D Order provides:
By July 2,2010, the Company and the Bank are required to submit a capital plan to the
OTS for the Company and the Bank that will detail, among other things, how the Bank will meet
and maintain a Tier 1 (core) capital ratio equal to or greater than 8% after the funding of an
adequate Allowance for Loan and Lease Losses (uALLL"), and a total risk-based capital ratio
equal to or greater than 12%. The capital plans were submitted to the OTS on July 2,2010.
By July 25, 2010, the Company must submit an operations plan to the OTS that addresses
how the Company will meet all of its fmancial obligations for the remainder of 2010 through
2012, including, but not limited to, payments on senior notes, dividend payments on preferred
stock, and interest payments on trust preferred securities without reliance on the receipt of
dividends from the Bank. This operations plan must include, among other things, pro forma cash
flow projections detailing all anticipated sources and uses of funds, including, but not limited to,
any scheduled payment obligations. of the Company related to outstanding debt, operating
expenses, and equity issuances. On a quarterly basis, the Board of Directors of the Company
must review and submit to the OTS a report prepared by management detailing material
deviations from the operations plan and related corrective measures.
Other provisions of the Company's C&D Order include the following: (i) that
the Company cannot declare, make, or pay any dividends or other capital distributions, or
repurchase or redeem any capital stock, without receiving the prior written non-objection of the
OTS; (ii) the Company cannot incur, issue, renew, repurchase, or rollover any debt, increase any
current lines of credit, or guarantee the debt of any entity without receiving the prior written non-
objection of the OTS; (iii) the Company cannot make any payments (including, but not limited
to, principal. interest, or fees of any kind) on any existing debt without receiving the prior written
non-objection of the OTS; and (iv) the Company must ensure the Bank's compliance with the
Bank C&D Order.
Among other things. the Bank C&D Order provides:
2 7 ~
-.,
By July 2, 2010, the Bank must submit to the OTS: (i) a ,capital plan to the OTS
addressing how the Bank will meet and maintain these capital ratios, and on a monthly basis, the
Board of Directors of the Bank must review a report prepared by management detailing
deviations from the capital plan and related measures; (il) a contingency plan to the
OTS that details actionS to be taken to (a)consurnmate a merger or acquisition by another
federally insured depository institution or (b) voluntarily liquidate by filing an appropriate
application with the OTS. This contingency plan must be implemented upon notification from ,
the OTS, and the Bank will be required to provide monthly status reports to the OTS on the
execution of the contingency plan; and (iii) a liquidity contingency plan to the OTS containing
strategies for ensuring that the Bank maintains adequate short-term and long-term liquidity to
withstand any anticipated or extraordinary demand against its funding base (this plan must: (a)
conform to regulatory' guidance; (b) specifically address deposit concentrations and plans to
reduce or manage such concentrations; (c) set forth the Bank's strategies for funding projected
lending activities; (d) include cash flow analysis of liquidity; (e) include identification ,of funding
sources to meet extraordinary demand; and (f) set forth the assumptions used in the development
of the liquidity contingency plan; and on a weekly basis or more frequently if requested by the
OTS, the Bank must submit to the OTS a liquidity and cash flow analysis). Such plans were
submitted to the OTS on July 2, 2010.
By July 25, 2010, the Bank must submit to the OTS: (i) an updated business plan
coveriiJ.g the Bank's operations through December 31, 2012, including, but not limited to, (a)
plans to strengthen the Bank's operations, earnings, and profitability; (b) discussion of the
Bank's current financial position and plans to meet projections and required capital ratios; (c)
. quarterly pro forma fmancial statements; and (d) all relevant assumptions and projections (on a
quarterly basis, the Board of Directors of the Bank must review and submit to the OTS a report
prepared by management detailing material deviations from the business plan and related
, corrective measures); (ij) a revised classified asset reduction plan contajnjng specific strategies
for reducing the Bank's'ratio of classified assets to Tier 1 (core) capital plus ALLL to a level and
within a time frame acceptable to the OTS, as well as plans to strengthen the Bank's capital base
even if such target is not met; and (iii) a revised concentration reduction plan detailing how the
Bank will reduce its existing concentration of construction loans, non-residential mortgage loans,
and non-agency mortgage-backed securities as a percentage of Tier 1 (core) capital plus ALLL to
a level and within a time frame acceptable to the OTS.
Other provisions of the Bank C&D Order include the following:' (i) the Bank must not,
directly or indirectly, make, invest in, purchase, or commit to make or purchase new construction
or land loans, except for construction loans underwritten through the preferred lender program of
the United States Small Business Association, without the prior written non-objection of the
OTS; (il) the Bank cannot increase its total assets during any quarter in excess of an amount
equal to net interest credited on' deposit liabilities during the prior quarter without the prior
written of the OTS; (iii) the Bank cannot declare or pay dividends or make any
other capital distributions without the prior written non-objection of the OTS; and (iv) the Bank
must comply with brokered deposit regulatory requirements. By August 31, 2010, the Bank
must ensure all violations of law are corrected and adequate, policies and procedures are
implemented to prevent future violations. By August 31, 2010, the Bank must adjust its loan
portfolio to comply with quantitative regulatory limitations regarding transactions with a single
affiliate. Further, the Bank cannot engage in any such transaction unless it has complied with
278@
applicable regulatory notification requirements. The Bank must reduce its loan concentrations to
comply with loan-to-one regulatory requirements. '
The C&D Orders shall each remain effective until terminated, modified or suspended in
writing by the OTS.
A copy of the Company's and Bank's 2010 Business and Financial Plan with
. accompanying assumptions are attached below in this Confidential Exhibit G. Three scenarios
are presented: Scenario 1 - a $125 million Capital Raise; Scenario 2 - a $200 million Capital
Raise; and Scenario 3 - a $65 mi.llion Capital Raise. In all scenarios, the acquisition of Legent
Clearing by the Bank is an essential component in the plan's implementation. Of particular note .
is that the acquisition of Legent Clearing allows the Bank. to once again control a significant
portion of its deposit base.

76676.000001 EMF_US 31600869v4
DATE: JUNE 28,2010
WlJ
.UNITED
....... WESTERN
. BANCORP
TO: THE FEDERAL DEPOSIT INSURANCE CORPORATION
FROM: UNITED WESTERN BANCORP, INC. AND UNITED WESTERN BANK
CC: LEGENT CLEARlNG LLC ACQUISITION FILES
RE: ACQUISmON OF LEGENT CLEARING AND IMPACT ON DEPOSITS WITH
UNITED WESTERN BANK UNDER 12 C.F.R. 337.6
INTRODUCTION
On June 15,2010, United Western Bancorp, Inc. (the "Company") announced the intention of
the United Western. Bank (the ''Bank'') acquiring 100% of Legent Clearing LLC (ccLegent
Clearing") as an operating subsidiary of the Bank, subject to the approval of the Office of Thrift
Supervision ("OTS") and Federal Deposit Insurance Corporation (the "FDIC"). Subsequent to
the announcement of the proposed Legent Clearing acquisition, Thomas Trujillo, Case Manager,
DSC Risk Management, FDIC, Dallas, TX, asked the Bank to outline for FDIC why the
acquisition of Legent Clearing will assist the Bank in reducing the amount of brokered deposits at
the Bank. This memorandum is inteJided to be responsive to this issue as raised by Mr. Trujillo.
First, the proposal for Legent Clearing to become an operating subsidiary of the Bank is
pennitted under applicable law and agency precedent. The activities conducted by Legent
Clearing are clearly within the powers of a federally chartered savings bank, as supported by the
opinion of OTS Chief Counsel, dated November 28, 2006. I Moreover, there is additional recent
precedent supporting the Legent Clearing acquisition in the Bank. In December 2008, 18 months
ago, Plains Capital Corporation, a bank holding. company regulated by the Federal Reserve,
through. its acquisition vehicle, Plains Capital First Southwest Holdings, Inc. acquired First
Southwest Holdings, LLC, which became a wholly-owned subsidiary of Plains National Bank.
Through this acquisition, Plains National Bank acquired First Southwest Securities, Inc. Deposits
swept from the client accounts of First Southwest Securities, Inc. are not reported as brokered
deposits by Plains National Bank, in fact, they are reported as core deposits by Plains National
Bank.
2
We believe that it is well established and non-controversial that an operating subsidiary
may engage in securities clearing and related activities. Therefore, for the purposes of this
I See copy attached lIS Exhibit A.
2 This information is based on conversations with representatives of Plains National Bank.
Page lof4
Confidential
2789
I t
discussion, we assume that the acquisition of Legent Clearing as an operating subsidiary of the
Bank will be approved by the OTS and the FDIC.
3
Moreover, under the OTS's subordinate organizations reguiations
4
and applicable guidance,
an operating subsidiary and its parent federal savings association are generally consolidated and
treated as a unit for statutory and regulatory purposes. S In particular, the assets of a federal
savings association and an operating subsidiary are aggregated when calculating investment
limitations
6
and are consolidated for all capital purposes.
7
Furthermore, unless otherwise
specifically provided by statute, regulation, or OTS policy, all federal statutes and regulations
apply to operating subsidiaries in the same manner as they apply to the parent savings association,
and operating subsidiaries are subject to examination and supervision by the OTS to the same
extent as the parent savings association.
8
As OTS guidance explains, "[t]he rationale for authorizing federal thrifts to establish
operating subsidiaries is to provide thrifts with flexibility in structuring their operations," which
also "enables federal thrifts to have parity with national banks, which have been authorized to
invest in operating subsidiaries for quite some time.,,9 In the analogous context of national banks,
the United States Supreme Court has treated operating subsidiaries as equivalent to their parent
banks with respect to powers exercised under federal law (except where federal law provides
otherwise).lo Specifically, the Court held in Watters that national banks may engage in expressly
permitted activities through an operating subsidiary, subject to the same terms and conditions that
govern the national bank itself, II and such power granted by federal law cannot be significantly
impaired or impeded by state law. 12
On becoming UWB's operating subsidiary, Legent Clearing will become subject to the same
terms and conditions as federal savings associations, including the full supervisory authority of
the OTS. This change will expose Legent Clearing to significantly more federal oversight than it
currently is subject to. As a subsidiary of the Bank, Legent Clearing has no independent ability to
collect deposits. As Legent Clearing will be a part of the Bank, deposits raised by Legent
Clearing will, therefore, be attributable to the Bank and will support the Bank.
Legent Clearing's clients have approximately $700 million of cash in their accounts at Legent
Clearing. This cash represents a stable long-term funding source that is available to be deposited
at the Bank. We expect that this amount, representing a significant core deposit, will grow
materially over the next several years and we are targeting total client cash balances at Legent
3 We recognize and agree that the agencies have other legitimate concerns regarding approving any operating subsidiary
such as the ability of management to adequately control the risks of the subsidiary's business, but, as to the central question
of whether it is permissible for a federal savings bank to engage in securities clearing selVices of the type provided by
Legent Clearing, we believe that issue has been put to rest in favor of the proposition.
4 12 c.F.R. Part 559.
5 12 c.P.R. 559.3(h)(1). See OTS Op. Chief Counsel P-2006-6, 3-4 auly 20, 2006).
6 12 C.P.R. 559.3(D(1).
7 12 c.P.R. 559.3G)(1).
s 12 c.P.R. 559.3(h)(1). See also Section 730, OTS Examination Handbook, 9 aan. 1994) (emphasis added).
9 Section 730, OTS Examination Handbook, 9-10 Oan. 1994).
10 Watters v. Wachovia Bank, NA., 550 u.s. 1, 18 (2007).
11 Id. at 1, 7.
12 !d. at 20-21.
Page 2 of4
Confidential
2790
Clearing and the Bank .. As such, the acquisition of Legent Clearing by the Bank will further
solidify this ongoing relationship in a manner that removes any uncertainty regarding the
treatment and/or characterization of the deposits at the Bank.. .
Accordingly, in accordance with the Bank's federal charter, if Legent Clearing is an operating
subsidiary of the Bank, deposits generated by Legent Clearing should be deemed to be deposits
generated by the Bank itself.
Page 4 of4
Confidential
2792
Paul Hastings
Allama
Beipno
Brussels
Chicago
Frankfurt
Hong Kong
London
Los Angeles
Milan .
New York
Orange County
Palo Alto
Paris
San Diego
San Franciaco
Shanghai
Tokyo
Washington, DC
(202) 551-1829
lawrencekaplan@paulhastings.com
July 2, 2010
VIAE-MAIL
LoriJ. Quigley, Acting Regional DiJ:ector
Nicholas J. Dyer, Assistant DiJ:ector
Office of Thrift Supervision, Westem Region
2001 Junipero Setta Boulevard
Suite 650
Daly City, CA 94014-3897
Rt: United Western Bank
Dear Ms. Quigley and Mr. Dyer:
Paul, Hastings, Janofsky & Walker LLP
87515th Street, N.W.
Washington, DC 20005
telephone 202-551-1700 facsimile 202-5511705 www.paulbasllngs.com
.'
Confidential Treatment Requested
l
On behalf of United Westem Bank ("UWB"OI the this letter is to confirm
discussions between the Bank and staff of the Office of 11uift Supervision and
FDIC during a Washington, D.C. meeting on June 30, 2010 regarding the letter
May 24, 2010 issued to UWB by the FDIC's Dalla.s Regional Office ("FDIC
The Bank believes the meeting was productive and useful in alloWing the Bank to bette.t
undetstand the FDIC's position and to share with the OTS and the FDIC its proposed
approach to respond to the preliminary broke.t deposits dete.tminationsin the FDIC
utter. .
As a threshold matter, as discussed at the meeting, the Bank does not believe that the
newly-deemed "brokered deposits"are deposits obtained from deposit brokers, as defmed
by the Federal Deposit Insurance Act and FDIC regulations, but instead are core, low-rate
deposits that did not fuel the rapid growth of the Bank. In this regard, it was discussed
that the Bank. intends to pUISue its appeal rights within the FDIC. appeals process and we
1 This letter contains confidenlial information conceming United Western Bank (the "Bank") and is not in .
lhe public domain. This information is being provided to Office of Thrift Supervision and Federal
Deposit Insurance Corporation, the agencies responsible for the regulation and supervision of the Bank as
materials related to the examination and operations of the Bank. Any public disclosure of confidential
information could result in substantial harm to the Bank. Accordingly, confidential treatment of this letter is
requested, pursuant to 5 U.S.C. 552(b)(4) and (8) is requested.
2 Although the FDIC Letter is dated May 24, 2010, it was not delives:ed to the Bank until June 2; 2010.
2794
Paul Hastings
Lori]. Quigley, Acting Regional Ditector
Nicholas]. Dyer, Assistant Ditector
July 2,2010
Page 2
discussed and agreed upon the appropriate steps to be ta.ken to pursue such an appeal.
The Bank is preparing to file a request for review of the preliminary FDIC dete.rmina.tion
with the FDIC Director of the Division of Supervision and Consumer Protection, the mst
step in the appeals process. It is possible that the determination will be reversed by the
pitector but, if it is not, the Bank may appeal to the FDIC Supetvision Appeals Review
. Committee However, as also discussed at the mee1il?-g, the Bank has
committed that it will. at the same time pursUe a multi-step strategy to address the FDIC's
preliminary determination and to achieve compliance with the June 25,2010 Cease and
Desist Order (the "OTS Order"), including (i) seeking a formal waiver from the FDIC to
permit the acceptance, renewal and rolling over of the newly-deemed brokered deposits;
(h) undertaking a significant capital raise by the Bank's parent, Uni!ed Westem Bancorp,
Inc. so as to exceed the standards required by the Order; (ill) restructUring its
operations pursuant to the Ba.nk a.cquisition of Legent Clearing lLC and
(Iv) evaluating strategies to gradually eliminate the newly-deemed brokered deposits that
permit the Bank to continue to operate as a viable entity.
During the meeting, the Bank sought assurance that the approach outlined above would
be acceptable to both the 01'8 and the FDIC and that the Bank and its officers and
directors will not be considered in violation of the OTS Order or the btokered deposit
statute ortegula.tions during the interim period while it is appealing the preliminary
determination. It is our understanding that the FDIC and 01'8 agree that the Bank may
pursue the approach outlined above consistent with the expectations of both agencies.
We ask that you promptly contact the undersigned if our understanding is in any way
inconsistent with the recollections of OTS and FDIC staff that attended the meeting or
with the views of others a.t the OTS and FDIC with supervisory tesponsibilities for this
matter.
As you are aware, on June 10,2010, the Bank rued with the FDIC a request fot a waiver
. from the btokered deposit restrictions pursuant to 12 U.S.c. 1831fand 12 C.F.R.
337.6(c). At the meeting senior FDIC staff described the FDIC Letter as a preliminary
determination. Additionally, FDIC staff expressed a willingness to consider favorably the
Bank's pending waiver request for the Bank to continue acceptance, renewal an.d rolling
over of deposits newly-deemed to be brokered. FDIC staff did, however, express
concems about the Bank's fee structure and the FDIC's inability to waive fee restrictions
if it is detet1llined that such fee restrictions are implicated by the newly-deemed broketed
deposits. To address this concern, the Bank will be providing the FDIC with additional
documentation that substantiate its fee and tate structures and representative industry
costs to demonstrate that the Bank's fees are not in excess of FDIC national rate
standards.'
2795
Paul Hastings
Lori J. Quigley, Acting Regional Director
Nicholas J. Dyer, Assistant Ditector
July 2, 2010
Page 3
As sumttlarized at the meeting, UWBI currently is undertaking a significant capital raise.
To date, multiple investors, including banks have expressed interest and have been actively
conducting due diligence to evaluate strategic transactions, each with a goal of returning
the Bank to a well capitalized status. Goldman Sachs & Co, UWBI's investment banker,
has received significant expressions of interest from multiple investors, demonstrating the
high likelihood of a private-sector solution to the Bank's current challenges. As discussed
in the Bank's June 10 waiver request to the FDIC, upon consutnlllating such a capital
transaction, the Bank and UWBI will seek modification of the OTS Order to remove the
"meet and maintain" provision, which at that ti1ne would be the only impeditnent to being
deemed well capitalized, triggering restrictions on the acceptance of brokered deposits.
As also discussed at the meeting, the Bank also will soon befiling an operating subsidiary'
application with the. OTS and FDIC concerning the acquisition of Legent and
establishment of Legent as an operating subsidiary of the Bank. Legent is one of the
deposit relationships that was raised in the FDIC Letter. The ptoposed acquisition will
cause deposits attributed to Legent to be attributed to the Bank itself, as OTS's
subordinate organizations regulations3 and applicable guidance provide that an operating
subsidiary and its parent federal savings association are generally consolidated and treated
as a unit for statutory and regulatory purposes.
4
Accordingly, we will be submitting
information to support the Bank's position that to the extent deposits at Legent cu.ttently
are deemed by the agencies to be brokered deposits at the Bank, after the acquisition, they
will be core deposits.
Finally, the Bank is also exploring options togtadually eliminate the newly-deemed
brokered deposits. To accomplish such an elimination without jeoparrlizmg the Bank's
operations and without disrupting depositors' busmesses and consumers' access to the
important services provided to them will requite careful planning and time.
In conclusion, we appreciate that the staff of both agencies participated in the very
productive discussion of the issues raised in the FDIC Letter, and the Bank's multi-
pronged plan to address such. We also appreciate the time and efforts extended by both
the OTS and FDIC to work with the Bank and UWBI to overcome their current
challenges. We have sought to accurately describe in this letter the Bank's understanding
of the current expectations of the OTS and FDIC to ensure that the Bank moves forward
in a manner consistent with the expectations of its regulators as to the newly-deemed
brokered deposits, as well as compliance with the OTS Order.
3 12 C.F.R. Part 559.
4 12 C.F.R. 559.3(h)(1). See OTS Op. Chief Counsel P-2006-6, 3-4 Ouly 20, 2006).
2796
Paul Hastings
-
Lori J. Quigley) Acting Regional Director
Nicholas J. Dyer, Assistant Director
July 2, 2010
Page 4
Please advise us if the Bank's understandings are in any way inaccurate.
Sincerely, ~
~ : i d f b n
cc: Boards of Directors of UWB and UWBI
Theodore Abariotes, Esq.
Serena L. Owens
Associate Director
Division of Supervision and Consumer Protection, FDIC
Andrew L. Sandier, Esq.
Jeremiah S. Buckley, Esq.
Liana Pietro, Esq.
Buckley Sandler, LLP
Kevin L. Petrasic, Esq.
Paul, Hastings, Janofsky & Walker LLP
2797
-
Memorandum
To: Board of Directors
From: Benjamin C. Hirsh and Lana Juhl
Date: July 20, 2010
Re: 2010 Business and Financial Plan Update
I. Executive Summary
The Board of" Directors and management are committed to the following: (i) achieving and
maintaining mandated regulatory capital ratios; (ii) conforming to all applicable laws and
regulations; (iii) providing responsive service to all of our Bank's deposit and borrowing customers
both retail and processing and trust; (iv) executing our business plan; and (v) achieving a reasonable
rate of return to our shareholder on its investment in the Bank; The Bank expects to achieve
required targeted "meet and maintain" capital levels by September 30,2010. The Bank expects to
continue to reduce non-performing and classified assets, reduce concentrations of C&D and CRE
lending and non-agency securities, eliminate reliance on brokered deposits when such deposits are
restricted" and comply with any formal or informal regulatory agreements and correspondence.
The year ended December 31, 2009 was very challenging for the Bank. For the year ended
December 31,2009, the Bank lost $69.4 million as compared to earnings of $13.7 million for 2008.
For 2009, the Bank lost $92 million pre-tax. Significant items affeCting the Bank's results included
a $47 million loss on the sale of 100% of mortgage-backed securities collateralized by option
adjustable rate residential mortgage loans, $23 million of other-than-temporary impairment (OTTI)
charges on non-agency MBS and $35 million of provision for credit losses. A further drain on the
results of the Bank's operations was excessive cash held on balance sheet earning approximately 25
basis points.
The positive elements of the results for 2009 were offset by the overall performance of the Bank;
however, the SBA department performed well and contributed $2.2 million of gain on sale of loans
as part of the overall contribution of the departments other net revenues to the organization. In
. addition, the construction and land development (C&D) portfolio declined to $343 million at
December 31,2009 after reaching $408 million at June 30, 2009.
2799
Structurally, the Bank continues to be modestly asset sensitive, meaning the Bank's net interest
income should increase as rates rise from these historically low levels.
Through the flrst six months of2010 the Bank has incurred a loss of $32.2 million. This compares
to the updated business plan budgeted loss for fJIst six months of 2010 . of the year of $29.9 million
for a $2.3 million negative variance. The Bank's original business plan budget indicated a loss of
$32.3 million for the year. For the fJIst six months, provision for credit losses was $18.9 million
compared to budgeted $20.7 million. OTT! in the Bank: was $9.6 million compared to budgeted
$7.2 million. Net interest income was $33.4 million for the flrst half of 2010 compared to budgeted
$32.7 million. Compensation expenses were modestly unfavorable in fJIst half of the year as we
eliminated certain positions later in the second quarter than we had contemplated in our business
plan. There was a modest favorable variance in subaccounting fees as our business plan
contemplated a reduction of Equity Trust deposit balances. The remaining unfavorable variance
was related to other operating expenses and was impacted by the REO write down on a couple of
properties (Belleterre for one) and the fee we paid to Equity Trust to induce them to withdraw $350
million of their deposits.
Under the original budget the Bank anticipated a loss of$2.8 million in the third quarter and income
of $391,000 in the fourth quarter of 2010, and continued profltability thereafter. Currently the
Bank's revised budget is very similar suggesting a loss of $2.2 million for the third quarter and
income of $335,000 in the fourth quarter.
The Bank is evaluating a number of possibilities for its non-agency investment portfolio. The Bank
is presenting scenarios in the updated business plan that include loss on sale of the direct credit
substitute ("DCS") securities in the third quarter of 2010. However, the Bank is also evaluating, in
consultation with the holding company, various alternative scenarios in which the DCS securities
may be exchanged with the holding company for cash at book value as the shareholders may deem
the present value of the estimate cash flows to be higher than estimated proceeds from sale.
The Bank has operated under a formal agreement the Cease and Desist Order ("C&D" or the
"Order") since June 25, 2010. The more significant items contained in the Order are as follows:
Achieve and maintain 8% core capital and 12% risk-based capital by June 30, 2010. The
Bank did not achieve these capital levels at June 30, and requested an extension from the
OTS, which was denied. The Bank: anticipates achievement of the meet and maintain capital
levels by September 30, 2010.
Liquidity Policy, and Contingency Liquidity Plan - the Bank developed a Liquidity Policy
that was submitted to the OTS in early May 2010 and was based on commentary received
from the OTS on an earlier version of the Policy. The revised Liquidity Policy addressed
and revised the levels of likelihood of certain funding sources and the identification of those
as Tier 1, Tier 2 and secondary, including documentation supporting FHLBank as a Tier 1
source. The Order calls for reevaluation of certain percentages of liquidity based on
. expectations for deposit fluctuations and liquidity levels and identiflcation of certain speciflc
assets that might be sold in the event additional cash was necessary to fund liquidity beyond
other cash flow sources.
Continued reduction of construction and development lending and reduction of the C&D
concentration in the loan portfolio to limits set by the Board subject to approval by the OTS.
2800
2
The Bank will continue to make construction loans for SBA 7a and SBA 504 loans. The
Bank's updated asset concentration reduction plan is provided under separate cover.
Reduce concentration of non-agency MBS .. The Bank is not to purchase any
MBS without the written non-objection of the OTS.
Eliminate reliance On brokered deposits. The Bank is not to renew, roll over, or extend any
brokered deposit without the written non-objection of the OTS.
The Bank is not to engage in Transactions with Affiliates except pursuant to tax sharing and
cost allocation agreements without the written non-objection of the OTS.
The bank is not to grow the balance sheet from the size of the balance sheet at March 4,
2010. Thereafter the size of the balance sheet may not grow in any quarter by an amount
greater than the interest credited to deposit accounts since the prior quarter balance sheet.
At March 4, 2010, total assets were $2.993 billion, at March 31, 2010 total assets were
$2.588 billion, at June 30, 2010 total assets were $2.205 billion.
Notify the OTS and receive written non-objection to director and management changes,
notify the OTS and re<;:eive written non-objection on severance and indemnifications,
employment contracts and compensation arrangements, third-party contract restrictions, and
capital distributions. .
Because of the various itelllS that will impact the Bank and UWBK in 2010 the updated business
plan includes three alternatives, each of which contemplates raising capital. Under the first case,
capital of $125 million is raised, under the second case capital of $200 million is raised, and under
the third case capital of $65 million is raised. In each alternative the capital is raised by UWBK and
the amount invested in the Bank is net of offering costs after taking into account the cash needs of
UWBK. Under the scenarios discussed above, the amount of cash to be invested into the Bank is
$90 million, $150 million and $62 million. In all cases, the purchase ofLegent Clearing is included.
n. Goals and Objectives For 2010
The Board of Directors and management have identified the following as the key goals and
objectives of the Bank for 2010. These matters are set Jorth in detail in the following sections of
this 201 0 Business Plan:
Earnings - in the base case, the Bank expects to incur a loss of $34.6 million on a pretax
basis for 2010, with the possibility of an additional loss ofapproximately $54 million on
sale of DCS securities. This will be comprised of $24.0 million of provision for credit
losses, approximately $9.6 million of OTTI charges and lower net interest income due to
excess liquidity for the first part of the year. The goal is for the Bank to achieve profitability
in the fourth quarter of2010 and quarterly thereafter.
Capital- the Bank was required to achieve 8% core capital and 12% risk-based capital by
June 30, 2010 and expects to achieve these levels by September 30, 2010. UWBK has
engaged Goldman Sachs to assist in raising capital. Management is considering all options
and with Goldman has identified several parties that have expressed levels of interest that
have resulted in the assumptions drafted above for levels of capital to be raised.
2801
3
Education - Management will continue to emphasize employee training in areas of
compliance, internal controls, Bank policies and procedures, and industry best practices. In
addition, as part of the educational aspect of the business plan, management will focus on
strategies to increase its interest rate risk management practices through the use of swaps,
hedges and other derivative contracts. Prior to implementation of such strategies and
transactions, policies and procedures will be documented and in place.
Ill. Economic analysis
The economic analysis section is a cOJ;nbination of both Colorado and national. The Colorado
emphasis is based on the fact that the majority of the community bank loan portfolio is Colorado
based. The national economic analysis is reflective of the single family residential loans, single
tenant and multifamily loan portfolios as well as the MBS portfolio.
In the first quarter of 2010, the Federal Reserve did not adjust the targeted fed funds rate. The rate
was last adjusted in December 2008 as a range of 0% to .25%.
The statement issued from the Federal Open Market Committee after the March 16, 2010 meeting
stated in part, "Information received since the Federal Open Market Committee met in January
suggests that economic activity has continued to strengthen and that the labor market is stabilizing.
Household spending is expanding at a moderate rate but remains constrained by high
unemployment, modest income growth, lower housing wealth, and tight credit. Business spending
on equipment and software has risen significantly. However, investment in nonresidential structures
is declining, housing starts have been flat at a depressed level, and employers remain reluctant to
add to payrolls. While bank lending continues to contract, financial market conditions remain
supportive of economic growth. Although the pace of economic recovery is likely to be moderate
for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a
context of price stability.
With substantial resource slack continuing to restrain cost pressures and longer-term inflation
expectations stable, inflation is likely to be subdued for some time.
The Committee will maintain the target range for the federal funds rate at 0 to 114 percent and
continues to anticipate that economic conditions, including low rates of resource utilization,
subdued inflation trends, and stable. inflation expectations, are likely to warrant exceptionally low
levels of the federal funds rate for an extended period. To provide support to mortgage lending and
housing markets and to improve overall conditions in private credit markets, the Federal Reserve
has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of
agency debt; those purchases are nearing completion, and the remaining transactions will be
executed by the end of this month. The Committee will continue to monitor the economic outlook
and financial developments and will employ its policy tools as necessary to promote economic
recovery and price stability.
In light of improved functioning of fmancial markets, the Federal Reserve has been closing the
special liquidity facilities that it created to support markets during the crisis. The only remaining
such program, the Term Asset-Backed Securities Loan Facility, closed on June 30 for loans backed
by new-issue commercial mortgage-backed securities and closed on March 31 for loans backed by
all other types of collateral."
Colorado Economy
2803
5
The Metro Denver EDC reported Metro Denver unemployment rate declined slightly between
March 8.2% and April 7.6% although historical data suggest the drop is more a reflection of typical
seasonal trends than a robust job gain. There were approximately 5, 1 00 jobs added in April. While local
employers are adding jobs, smaller-than-average seasonal gains - and even job losses - in large
industries including construction and professional and business services are limiting the pace of labor
market recovery. Home sales increased significantly compared to the year ago periods and foreclosure
filings had declined about 4% from year ago levels. (Source metrodenver.org)
According to the National Association of Realtors (Source www.realtor.org), May existing home sales
declined 2.2% from April, but are 19.2% higher than sales from May 2009. "Existing home sales
remained at elevated levels in May on buyer response to the tax credit, characterized by stabilizing home
prices and historically low mortgage interest rates."
The Case Shiller Index with date through April 2010, as released June 29,2010, showed annual rate of
decline improved in April compared to March. The Denver index was 127.50 at April 2010, up 1.7% in
the month and up 4.4% in the year over year period. The index was 125.59 at January 2010. (Source
S&P Case Shiller report of June 29, 2010)
The metro Denver CRE vacancy rate fell from l3.9% in the fourth quarter of 2009 to a first quarter level
of 13.7%, or the same rate reported one year prior. The first quarter direct average lease rate of $20.03
per square foot was 5.7% lower than last year. (Source metrodenver.org)
National Economy
The national unemployment rate declined to 9.5% for the month of June compared to 9.7% for the
month of May according to a Washington Post article of July 2,2010. The decrease was reported as a
surprise and attributed to hundreds of thousands of workers that dropped out of the labor force. Private
employers added 83,000 jobs in June, more than double the rate in May, but below the six-figure job
creation numbers that would suggest a strong recovery in employment. The conclusion, "the expansion
that began last year has indeed lost momentum, but the numbers are not so bad as to suggest the nation
is heading into a double-dip recession.''(Source:http://www.washingtonpost.comJwp-
dyn/contentiarticle/20 1 0/07/021 AR20 1 0070202004.html?hpid=topnews)
National Economy - Housing
Housing starts in May were at a seasonally adjusted annual rate of 593,000. This is 10% below the
revised April of 659,000, but is 7.8% above the May 2009 estimate of 550,000. (Source
www.census.gov) Wells Fargo outlook is for 600,000 housing starts in 2010 which compares to 1.3
million units for 2007. Household income growth remains modest and credit standards are tighter.
Household expectations for home prices and the state of the market remain very subdued. (Source
Wells Fargo Economic Group)
The Federal Housing Finance Agency, the successor to Office of Federal Housing Enterprise Oversight
(OFHEO) index of purchase-only home prices rose from March to April by 0.8%. The previously
reported 0.3% increase in March was revised to a 0.1 % increase. For the 12 months ended in April, US
Prices fell 1.5%. The US index is 12.8% below its April 2007 peak. (Source www.fhfa.gov)
Data released on June 29, 2010, through April 2010 by Standard and Poor's for its S&P/Case-Shiller
Home Price Indices, shows that the annual growth rates of the 10-City and 20-City composites improved
in April compared to March. The IO-City Composite is up 4.6% from April 2009 and the 20-City
2804
6
City Composite is up 3.8% versus the same time last year. Of note, Dallas, Denver, San Diego and San
Francisco have all posted six consecutive months of positive annual rates of return.
"Home price levels remain close to the April 2009 lows set by the S&P/Case Shiller 10- and 20-City
Composite series. The April 2010 data for all 20 MSAs and the two Composites do show some
improvement with higher annual increases than in March's report. However, many of the gains are
modest and somewhat concentrated in California. Moreover, nine of the 20 cities reached new lows at
some time since the beginning of this year. The month-over-month figures were driven by the end of the
.Federal first-time home buyer tax credit program on April 30th. Eighteen cities saw month-to-month
gains in April compared to six in the previous month. Miami and New York were the two that fared the
worst in April compared to March. New York is the only MSA to have posted a new relativeindex low
with April's report." says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's.
"Other housing data confinn the large impact, and likely near-future pullback, of the federal program.
Recently released data for May 2010 show sharp declines in existing and new home sales and housing
starts. Inventory data"and foreclosure activity have not shown any signs of improvement. Consistent and
sustained boosts to economic growth from h o ~ i n g may have to wait to next year. "
As of April 2010, average home prices across the US are at similar levels to where they were in late
summer/early autumn of 2003. From the peak in June/July 2006 through the trough in April 2009, the
lO-City is down 33.5% and the 20-City Composite is down 32.6%. The peak-to-date figures through
April 2010 are -30.5% and -30.0%, respectively. (Source: S&P Indices Press Release dated June 29,
2010)
The delinquency rate for mortgage "loans on one-to-four-unit residential properties increased to a
seasonally adjusted rate of 10.06% of a11loans outstanding as of the end of the first quarter of 2010, an
increase of 59 basis points from the fourth quarter of 2009, and up 94 basis points from the first quarter
of 2009. The non-seasonally adjusted rate decreased 106 basis points from 10.44% in the fourth quarter
of2009 to 9.38% in the first quarter of 2010. (www.mortgagebankers.orgMay 19, 2010 press release).
The" delinquency rate includes loans that are at least one payment past due but does not include loans
somewhere in the process of foreclosure. The percentage of loans in the foreclosure process at the end
. of the first quarter was 4.63%, an increase of five basis pointS from the fourth quarter of 2009 and 78
basis points from one year ago. The combined percent of loans in foreclosure and at least one payment
past due was 14.01% on a non-seasonally adjUsted basis a decline from15.02% last quarter.
''The issue this quarter is that the seasonally adjusted delinquency rates went up while the unadjusted
rates went down. Delinquency rates traditionally peak in the fourth quarter and fall in the first quarter
and we saw that first quarter drop in the data. The question is whether the drop represents anything
more than a normal seasonal decline or a more fundamental improvement. Most importantly, the
nonnal seasonal drop is coming right at the point where we believe delinquencies could potentially be
declining and the problem for the statistical models is determining which is which," said Jay Brinkmann,
MBA's Chief Economist.
"Overall we see a continuation of the pattern of declines in short-term delinquency rates, at least on a
non-seasonally adjusted basis, the continued historically high share of delinquencies that are 90 days or
more past due, and a leveling off in the pace of foreclosures."
"The economy has begun to generate jobs and layoffs have declined, although new claims for
unemployment insurance remained higher in the first quarter than we expected. The percent of loans
2805
7
behind one payment had been declining as first-time claims for unemployment began falling in March
2009. Those new claims stopped falling during the fIrst quarter of t1!j.s year, which likely halted the
decline in the underlying 30-day delinquency rate. If mortgage delinquencies are not yet clearly
improving, it also appears they are not getting worse. However, a bad situation that is not getting worse
is still bad."
"For several years, the four states of Florida, Arizona, Nevada, and California have dominated the
. national delinquency and foreclosure numbers. Florida is still getting worse, but California is showing
signs of improvement. . However, Washington, Maryland, Oregon and Georgia showed the greatest.
overall increases in foreclosures started compared to last quarter."
The seasonally adjusted delinquency rate increased for all loan types except FHA loans. The
delinquency rate was 6.17% for prime fIxed loans, 13.52% for prime ARM loans, 25.69% for
subprime fixed loans, 29.09% for sUbprime ARM loans, 13.15% for FHA loans and 7.96% for VA
loans. On an non-seasonally adjusted basis, the delinquency rate fell for all loan types.
IV. Organizational Structure
United Western Bank
As of June 30, 20 1 O ~ the Bank owns six subsidiaries. Matrix Financial Services Corporation
("MFSC"), is a mortgage company based in Phoenix, Arizona and also has one subsidiary, Matrix
Insurance Services Corporation ("MISC"), which is licensed to sell insurance. At March 31, 2010,
MFSC services approximately 12,600 loans with an unpaid principal balance of $743 million
through Dovenmuhle on a national basis. The Bank has not added to the portfolio since it exited the
mortgage origination business in 2003. MISC sells life, accidental death, and disability insurance,
marketing exclusively to the mortgage-servicing portfolio. The Bank has three New Markets Tax
Credits ("NMTC") entities, Community Development Funding 1, LLC, ("CDFI"), Charter
Facilities Funding IV, ("CFFIV'') and Charter Facilities Funding 5, ("CFF5'').These entities have
deployed NMTC through the SBA division and the community bank. Matrix Tower Holdings
(MTH). is a subsidiary that recognizes amortized deferred gain from the salelleaseback transaction
executed in 2006. The last subsidiary is DCC Holdings, LLC an entity created to hold commercial
REO.
The results of the subsidiary companies are not material to the overall results of the Bank.
Generally, the NMTC entities are profitable on a monthly basis, MFSC and MISC are near break
even on a monthly basis and quarterly MFSC results are impacted by any adjustment to the
foreclosure reserve or repurchase reserve. DCC Holdings, LLC is an "entity funded with nominal
capital and debt with a purpose to hold REO. It incurs a loss on a monthly basis.
Holding Company and Affiliated Companies
United Western Bancorp, Inc. (''UWBK'') is a unitary thrift holding company, which has two
significant wholly owned subsidiaries: the Bank and UW Trust: In addition, UWBK owns several
non-core subsidiaries including:. Matrix Bancorp Trading, Inc. ("MBT''), UW Investment Services
Corporation ("UWIS"), Equi-Mor Holdings Inc., UWBK Fund Management, and the Vintage
Group, Inc. (''Vintage'').
The holding company provides core functions to each of the subsidiaries. Human Resources staff
handles all employee and benefit matters. Management Information Systems, internal audit, and
2806
8
legal departments are staffed at the holding company as well. Assets of the holding company
consist of cash, certain MBS securities, a portion of the Equity Trust note, and investment in
subsidiaries. Liabilities consist principally of
UWIS, a wholly owned subsidiary ofMBT, is a registered broker dealer with the FINRA. It has one
office located in Denver, Colorado, and is currently not active.
UW Trust Company ("UW Trust''), formerly known as Sterling Trust Company, wholly-owned by
UWBK and headquartered in Waco, Texas, is a Texas non-bank trust company. On June 27,2009,
UW Trust consummated the sale of certain of its assets. These assets were associated with UW
Trust's self-directed individual retirement account and qualified employee benefit plan
administration busiIi.ess. In addition, to the assumption of certain UW Trust liabilities, the purchase
price. for these assets was $61.4 million, of which UW Trust received approximately $15.3 million
in cash from the buyers at the closing of the transaction. The remaining portion of the purchase
price was . financed pursuant to a loan agreement In connection.withthe sale, UWBK recorded a
pre-tax gain on the sale of $56.0 million, or approxiImltely $36.1 million net of tax. The operating
resultsofUW Trust Company, which are included in the UWBK's custodial and advisory services
segment, and which waS attributed to the custodial IRA and qualified employee benefit plan
. businesses sold by UW Trust are presented as discontinued operations. In June 2010, UW Trust was
merged into a newly formed, South Dakota chartered trust company. United Western Trust
company, which has retained and will continue to operate its custodial escrow, paying agent and
trust administration lines of business, which management deems a core operation, and thus, United
Western Trust Company will continue to be included in segment reporting. As of the date of the
merger, United Western Trust company assumed all of the . assets and liabilities of UW Trust
Company and UW Trust Company surrendered its trust company tothe Texas Division of Banking.
v. Management and Staff resources
Boa.rd and Committees
The Bank's Board of Directors is responsible for, and directly or indirectly oversees, all activity of
the Bank.
The Board consists of seven directors. Four positions are filled by inside directors including James
R. Peoples, Chairman, President and CEO of the Bank, Guy A. Gibson, Vice Chairman and founder
ofUWBK., Gary G. Petak, EVP and CCO,and Benjamin C. Hirsh, EVP and CAO. Mr. Gibson is
the Chairman ofUWBK. Mr. Hirsh is CAO and Interim CFO ofUWBK.
Three directors are independent and include, Bernard C. DarnS, co-founder and partner of Bow
River Capital Partners, a group of private equity/opportunity funds founded in 2003, which make
investments in operating companies and special situation real estate and oil and gas opportunities in
the United States, Canada and Mexico. Charles Berling, a real estate consultant and executive, and
Dr. James Bullock, a retired university accounting professor. Dr. Bullock and Mr. Darre are
_ members of the Board of Directors ofUWBK as well.
There are several functional committees of the Board, four of which meet or quarterly, or
more frequently as needed. The outside directors comprise the Audit Committee, which is chaired
by Dr. Bullock and meets at least quarterly or more often as needed The. Regulatory Compliance
Committee is chaired by Dr. Bullock and meets at least quarterly or more often as needed and
2807
9
monitors the Bank's progress with regulatory compliance of the Order, other correspondence and
arrangements with the regulators. The Loan Committee, is chaired by Mr. Petak and is comprised of
six directors including all three outside directors. The Investment Committee is chaired by. Mr.
Hirsh and is comprised of six directors including two independent directors. .
Two additional committees, the Nomination Committee and the Compensation Committee, which
include Mr. Peoplesand the independent directors, meet as needed.
In addition to the Board committee structure, there are four key management committees that meet
monthly or more often. The AssetJLiability Committee, chaired by the CFO, CAO or COO and
consisting of Bank senior management and selected staff members, meets monthly to discuss the
Bank's balance sheet position, liquidity, and discuss and direct the investments of the Bank.
The Compliance Committee, chaired by the Compliance Officer and attended by Bank's senior
management and selected staff members, meets monthly to review policies and the activities of the
Compliance function.
The Information Technology Committee, chaired by the CTO and attended by Bank, UW Trust and
UWBK IT management and selected staff members, meets monthly to review policies and
procedures, business resumption planning and testing, the strategic technology plan, and related
matters.
The Executive Loan Committee, chaired by the Chief Credit Officer and consisting of four senior
Bank officers, meets to approve loan requests in amounts delegated by the Board through
resolutions.
The Board of Directors oversees the activities of these committees by attendance and by review and
approval of minutes or other reports of activity conducted.
Senior Management
The President and CEO of the Bank is James R. Peoples. Mr. Peoples has 35 years experience at
KeyBank, Omni Bank, First Interstate, National Westminster Bank and Central National Bank. Mr.
Peoples joined the Bank as EVP Loan Administration in February 2010 and replaced Scot Wetzel as
Chairman, CEO and President of the Bank in April 20 10.
The Bank has five senior management members in addition to Mr. Peoples. The average tenure with
the Bank of the management team is approximately seven years.
The organizational chart reflects the senior managers reporting to Mr. Peoples. . Direct reports
include the Chief Operating Officer, Interim Chief Financial Officer, Chief Credit Officer, SVP -
General Counsel Bank, Director Internal Audit, and the regional bank presidents. .
The senior management team of the Bank is considered appropriate, in both number and experience
level to operate the Bank efficiently, competitively, safely and soundly, and in compliance with
applicable rules and regulations, while meeting the goals and objectives contained in this business
plan. Significant changes in 2010 include the employment of Mr. Peoples and promotion of Ms.
Juhl to interim CFO.
2808
10
Management has addressed management succession in a separate memo previously approved by the
Board of Directors.
The Board considers its employees to be the greatest asset of the Bank. Staffing at the Bank consists
of 163 FTEs. The attached organizational charts reflect the current structure and reporting . lines of
all staff positions. Management is continuing to seek the non-objection of the OTS With respect to
severance and termination payments made to approximately 15 employees who left the Bank during
the second quarter 0[2010. .
As discussed departmentally, major goals for 2010 will be to restore the Bank to profitability, attain
and maintain full. compliance with the Formal Agreement, any other agreement and written
correspondence from the OTS, maintain compliance with rules and regulations impacting the Bank
and continue with staff training.
Consultants
The Bank will continue to rely on various outside consultants as resources during 2010. The Audit
Committee will select the auditors for the Bank as well as a qualified third party service provider
for the Information Technology GeneralControls review.
The Bank has retained Mr. Larry Kaplan, of counsel in the corporate practice of Paul, Hastings,
Janofsky, & Walker, LLP . Washington, D.C. office, as primary regulatory counsel. Mr. Kaplan
was retained during the second quarter after the Bank's former regulatory counsel Mr. Gary Lax
temporarily left the employment of his former firm Luse Gorman Pomerenk and Schick. The Board
or appropriate delegated authority may consider other consultants for specialized engagements as
needed. Such consultants are engaged in contemplation of TB 82aas well as the requirements of
the order.
VI. Departmental Goals and Objectives
General
The Bank's principal business has been and will continue to be attracting low cost deposits
primarily from processing and trust such as securities clearing firms, trust companies, third party
administrators, mortgage servicers and re-investing those deposits in loans arid securities that are
primarily secured by real estate. In particular, the Bank will be purchasing government backed
agency securities, GNMA, FNMA, FHLMC, and focus on the origination of SBA 7a and 504 loans
with emphasis on those held-for-sale with the view to selling the loans in the secondary market. The
Bank will also originate community bank loans, capital levels permitting with additional focus on
. commercial and industrial loans, while reducing exposure to C&D loans and non-owner occupied
CREloans.
Compliance
The Compliance Department plans to maintain the same course of action as followedin 2009. With
the assistance of the Board of Directors, the Compliance Committee and the Community
Reinvestment Act Committee, an extensive compliance audit/review schedule has been developed
and will be followed. A regimented training schedule consisting of on-line courses and live lecture
2809
11
format has been adopted and will continue to be maintained. The training and auditing components, .
accompanied with ensuring that personnel are kept up to date with all new and changing
regulations, will continue to advance the compliance culture of the Bank. Again, the ultimate goal is
. to achieve a satisfactory or better compliance rating at the next scheduled examination.
Community Bank Lending
The Bank operates eight full service locations and one loan production office. Due to the economic
environment and capital levels of the b a n k ~ management closed the Aspen loan production office at
the time of the lease expiration.
The Bank's locations are Loveland, Longmont, Fort Collins, Boulder, downtown Denver, Cherry
Creek, Hampden, and Centennial. Five of these locations were built by the Bank, three were
existing structures including the headquarters location. The Bank does not anticipate building
additional branches in 2010; however, if the capital raise is successful, the Bank may consider
additional branches via acquisition rather than the de novo process used in the past.
In total, loans are anticipated to decline approximately $96 million in 2010 half of which is
expected to be half from C&D loan decline and half from residential loans. Additionally, CRE
loans are expected to decline by approximately $24 million. Management has forecasted modest
growth from the commercial, SBA and consumer loan portfolios.
New Markets Tax Credits
Through its NMTC entities, the Bank has $20 million of NMTC that need to be deployed this year.
The Bank is looking to deploy these credits through the SBA group and the community banking
teams in 2010.
SBA Loan Origination
United Western Bank has been engaged in the SBA business since early 1998 and has been
designated a Preferred Lender by the SBA since 1999. The Small Business lending department of
the Bank, based in Denver, operates several Loan Production Offices across the United States and
originates SBA 7a, 504 and USDA business and industry loans. The current Business Development
Officer network operates from LPO bases in Colorado, Arizona, Oregon, Pennsylvania, California
and Texas. The 7a and USDA loans are guaranteed by the Federal government, as much as 90%.
The majority of loans originated in 2008 and 2009 have been 90% guaranteed and we expect that
level to continue for a substantial portion of 2010. SBA 504 loans involve a local lending partner
in the Certified Development Company, which funds a portion of the financing project, usually 30-
40%, in junior position. Expectations are to increase the BDO network by at least 2-3 in 2010 and
maintain 12 BDO' s through the year as an optimum level. Internal production, originated primarily
by divisional management, has and will continue to be a portion of loan origination. Including
internal "in-house" production, 2010 production is anticipated to approximate $80-100 million, the
vast majority of which is guaranteed and saleable in the secondary market. The bank also retains
on average a 1 % servicing fee on all loans sold in the secondary market. The division anticipates
2010 production to equate to approximately 120 loans at an average 7a loan size of $675,000, an
average USDA loan of $2.5 million and an average 504 loan size of $1.5 million. In 2010, we
2810
12
2010, we anticipate more than 85% of our production to be 7a1USDA related. In addition to spread
and fee income, gain on sale of $4.6 million and servicing income of $1.5 million are budgeted for
2010.
Deposit Operations - Processing and Trust Deposits
Deposit operations is headed by Tom Kientz, the COO of the Bank. The Bank's processing and
trust deposit clients are serviced in this area of the Banks. Customers include Matrix Financial, UW
Trust Company, Equity Trust, Matrix Financial Solutions (MSCS) CPI, Trust Management, Inc.,
Lincoln Trust, Constellation Trust and others. The Bank has developed systems necessary to offer
the solutions these deposit customers have come to rely upon, which is what makes so many of
these relationships core deposits to the Bank.
Growth in this area for 2010 is principally focused on the acquisition of Legent Clearing. During
2010, new relationships with QwickRate and Lincoln Trust were successfully established adding
approximately $200 million in core deposits.
Retail Deposits
Part of deposit operations retail deposits reports to Mr. Kientz. This business unit is responsible for
the Bank branch customers at the eight open locations. Significant growth has occurred over the
past two years primarily in CDARs deposits as customers have sought the safety of an insured
deposit. Such deposits are considered brokered deposits by regulators and given the Bank's Order
and capital levels, the Bank may not currently renew, extend, or roll. over these deposits without
written non-objection of the OTS. The Bank is working to move selected CDARs deposits to
other deposits within the Bank and to grow retail deposits through actions at ALCO and targeted
marketing efforts.
Internal Audit
The internal audit department is located at UWBK and reports to the Audit Committees of UWBK
and the Bank. The specific goals of the internal audit department are included in the Internal Audit
plan presented separately to the UWBK and Bank audit committees.
Credit Administration
Credit administration is headed by Mr. Gary G. Petak, a 30-year veteran. Credit administration is
the focal point of the Bank's disciplined credit culture. This culture is based on lending to people
with which our bankers have existing and generally long standing relationships. The Bank has
established sound lending practices that are traditional to community banking. The portfolio is
Colorado focused and comprised of almost entirely tangible collateral principally real estate. Most
loans contain recourse. Loan origination requires two signatures for all approvals which is tiered as
documented in the Delegations of Authority, including Executive Loan Committee, Directors Loan
committee, and the Board of Directors. Loan review is an independent function that reports directly
to the Audit Committee. The director of loan review has over 25 years experience with prior OCC
regulatory experience. Each loan officer certifies the loan rating on a quarterly basis. Classified
loans are moved to credit administration and centralized asset recovery group for monitoring,
workout and collection. The Bank has established centralized monitoring for construction lending,
commercial borrowing base loans and CRE stress test modeling.
2811 13
The goals of credit administration for 2010 are to reduce the levels of classified assets, reduce
concentrations of C&D loans and non-owner occupied CRE loans and assist the lending side of the
Bank in the origination of quality loans.
Accounting
The goals and objectives of the Accounting department fall into four primary categories: regulatory,
customer service, fmancial reporting, and staff related. In the regulatory and financial reporting
areas, the highest priority will be to prepare accurate fmancial statements and regulatory reports and
assist the Bank in achieving a satisfactory safety and soundness ratings. To this end, appropriate
accounting staff members will improve their knowledge and training on required regulatory reports,
participate in required staff regulatory and compliance training, achieve a better working knowledge
of the Thrift Examination Handbook, enhance the level of documentation prepared and maintained
by the department and focus on the fmdings from the most recent examination.
In the area of customer service, it is important to note that the department's customers are internal
in nature, i.e. other departments responsible for resolving reconciling items, operational staff, etc.,
but also internal and external users of the financial reports produced by the department. By
increasing communication with its internal customers, the department will continue to nurture a
team spirit with other departments to resolve common issues surrounding the accounting and
bookkeeping function. By decreasing the time in preparation of monthly and financial reports, all
users will have additional time to analyze the information contained therein.
Other continuing goals for 2010 include: maximizing eligible loan collateral for pledging purposes
to FHLB-Topeka and the continued review of community bank loans for eligibility of pledging.
VII. Records, Systems and Controls
The accounting records of the Bank. are maintained on a network with write access only to
accounting department personnel. The Bank utilizes Navision software to process general ledger
transactions. The Navision software is owned by the Bank and its subsidiaries and affiliates for the
past 10 years.
The Bank's core processor is FIS, formerly known as Metavante. All deposit accounts other than
CDARs and all community bank. loans are maintained on FIS. FIS is fully integrated to the
Navision general ledger. Other loan systems include two versions of PCFS, one for SBA
originated, one for SBA purchased, Fidelity for loans owned by MFSC, and SBO for residential
loans owned by the Bank. Various other in-house systems are used to maintain internal reports,
primarily personal computers and software, such as financial spreadsheets.
Goals for 2010 are to determine if the other loan systems can be read into the BIC (FIS) report
writer and from there used to generate reports that will streamline the financial and regulatory
reporting process.
The internal controls of the Bank. are documented in various policies, procedures and in SOX
documentation, which is updated and subjected to testing on a periodic basis. The Bank has
developed a comprehensive set of policies and procedures to ensure consistency, efficiency and
compliance with applicable rules and regulations. These policies and procedures are updated at
regular intervals to comply with changing laws, rules and regulations. Key members of senior
2812
14
management each maiIi.tain a comprehensive set of policies and procedures and use the policies and
procedures as a working tool.
Management believes that the preventative internal controls in place are appropriate and effective.
In addition, there are several monitoring activities performed by various committees including the
Board of Directors and the Audit Committee. The Audit Committee of the Board of Directors
reviews the Bank's budget and auditperformance and meets with the Bank's auditors. The Audit
Committee also monitors and reviews regulatory reports and the reports of Internal Audit reviews
performed. The Audit Committee reviews the SOX reports prepared by the SOX department, an
adjunct to the Internal Audit function, which is responsible for testing management assertions with
respect to internal controls. The Bank's CFO, COO, and Compliance Officer are responsible for
coordinating all data processing and financial reporting, compliance with the Bank Protection Act,
Bank Secrecy Act and all governmental agency reporting (OTS, IRS, etc.).
The Bank maintains all of its financial reports and records in accordance, in all material respects,
with generally accepted accounting principles. Crowe Horwath, LLP, which in the view of senior
management has the financial services expertise to service the needs of the Bank, will perform all
independent accounting functions. Services rendered by Crowe include performance of the annual
audit and tax returns, an annual review of operations, reporting to management and the Board of
Directors and providing accounting and tax advice throughout the year
VIll. Financial Management Plan
The financial plan of the Bank for 2010 is to return to profitability, restrict growth asrequired by
the Order, improve asset quality, maintain acceptable assetlliability mix (interest rate risk profile)
and comply with other regulatory requirements, while providing superior service to our customers.
The business plan and financial projections must be read and considered in conjunction with the
Bank's strategic plan, and policies and procedures currently in place.
Under scenario 1 or 2, in which capital of $90 million or $150 million is invested intothe Bank and
DCS securities are either sold or transferred to UWBK resulting in a completely different and
reduced risk profile of the Bank, the Bank anticipates making requests of the OTS for revisions to
the Order. The suggested changes are documented below. Included are the financial statements for
2010 through 2012 on a quarterly basis in the accompanying Powerpoint presentation. Also
included with the. projections are the significant assumptions that were made by management in
deriving these projections. The Bank will perform and document quarterly budget to actual
comparisons. In addition, should a request for change to the financial plan be made by the OTS
such change will be represented to the Board of Directors for its approval.
Capital and Earnings
The Bank will be at least adequately-capitalized at all times. The Bank expects' to achieve capital
levels of 8% core and 12% risk-based required by the Order by September 30, 2010. Although, the
Bank projects a large loss for 2010, the capital raise scenarios contemplate the transfer or sale of all
DCS securities significantly improving the capital ratios of the Bank as well as significantly
reducing the risk profile of the Bank. The Bank is expected to achieve profitability in the fourth
quarter of 2010 and,. with the combination of Legent, to be profitable and increasing profitability
through 2011 ~ d beyond.
2813
15
Capital and Earnings - Impact of Capital Raise to the Order
Under the scenarios in which $90 million and $150 million of capital is injected into the Bank, the
Bank intends to request of the OTS for elimination of elements of paragraph 2 of the Order which
contains the meet and maintain language. This request will be based on the level of cushion of
capital over the required capital ratios of 8% for core and 12% for risk based, which we believe will
eliminate the supervisory need to deem the Bank other than well capitalized. This will allow the
Bank to execute its business plan with respect to processing and trust business and obviate any
FDIC issues concerning brokered deposits.
We will also request a waiver of the restriction on asset growth to allow for the purchase of Legent
as well as to prudently grow the balance sheet, principally as a result of increased SBA lending,
agency investment security acquisition, modest commercial lending and residential lending while
continuing to reduce CRE and C&D concentrations.
The Bank anticipates no application for the payment of dividends to UWBK until the fourth quarter
of2011.
Under the scenario in which $61 million is injected into the Bank, the Bank would expect to operate
under the Order, however, after demonstration of stabilization of earnings, capital and liquidity,
management would expect the Order to be lifted with corresponding increases in CAMELS ratings.
Under the scenario in which $61 million is injected into the Bank, management will have to
diligently manage the asset size of the balance sheet, and work with the OTS for the payment of
dividends to UWBK which would be required in early 2011.
Balance Sheet Management
The Bank has originated over $1 billion of community bank loans since adoption of its current
business plan in late 2005. The Bank has originated loans that are collateralized by real estate,
which is common to its peers for the state of Colorado. As we manage the overall size of the
organization to monitor capital ratios, we have budgeted for a decline in loans on the balance sheet
for 2010. Asset classes that are being targeted for m()dest growth in 2010 include loans originated
from the SBA division and GNMA securities. Both contain lower risk weights than community
bank loans and significant portion of the loans originated through the SBA division are expected to
be sold at a premium.
The Bank continues to be modestly asset sensitive and, through ALCO, the Bank has maintained an
acceptable risk profile.
Balance Sheet Management - Impact of Capital Raise to the Order
Under the first two scenarios loan growth and agency security growth would be pursued subject to
elimination of the asset growth limitation waiver from the OTS. Areas of focus would include SBA
lending, commercial lending, and agency security purchases in addition to the margin lending that
will come from the Legent acquisition.
Under the last scenario, continued contraction of overa111ending levels absent the increase from the
Legent transaction would be expected to give the Bank room to maintain required capital levels and
successfully apply to the OTS for payment of a dividend to UWBK.
2814 16
Liquidity and Funds Management
The Bank monitors liquidity and funds management through ALCO. ALCO will meet at least
monthly, but more often as necessary to discuss and manage liquidity for the Bank. The Bank has
updated its Liquidity Policy to reflect the current environment and current conditions in the
marketplace as well as enhanced regulatory expectations for liquidity management and contingent
liquidity funding (see the Liquidity Policy).
As we manage liquidity and grow deposits prospectively, we believe the competition for
community banking deposits,. both retail and business, will be substantial and will continue to
increase as the dominant national banks increase their branch presence further, and as retail and
business customers migrate away from bank branches to other platforms. In this regard, we have
continued to capitalize on our longstanding core deposit base through the development of
processing and trust deposit relationships (which includes securities clearing and settlement,
custodial, trust and escrow) that provide a stable, long-lived and inexpensive alternative to the
traditional branch-banking concept. We anticipate that we will evaluate various additional sources
to this deposit gathering strategy, and in the future, we may consider acquiring deposits from
. processing businesses that have significant deposit generating capacity that is incidental to their
primary purpose.
Through ALCO and our COO, we will work to retain maturing CDARs deposits and provide our
bankers with certain products that will be aimed at retaining the deposits and relationships. This
assumes that the Bank is well capitalized and no longer subject to any "meet and maintain" order
with respect to its capital ratios.
To date, the Bank has successfully managed its liquidity under the Order. There has not been
deposit withdrawals that are directly attributed to the issuance of the Order and liquidity has been
maintained at a robust level.
Liquidity and Funds Management -Impact of Capital Raise to the Order
Under the first two scenarios the Bank will purchase some level of agency securities that will
increase availability at FHLB Topeka. Under all scenarios, liquidity will continue to be maintained
in accordance with the Bank's Liquidity Policy which provides for appropriate levels of liquidity
given the fluctuations that occur in certain of the processing and trust deposit customers. Under
the first two scenarios, the Bank will immediately request the restoration of the de minimus daylight
overdraft cap limit at the FED and work with the FED and the OTS for that flexibility.
Sensitivity to Market Risk
The Bank objective with respect to sensitivity is to maintain a rating 1 minimal or 2 moderate in the
Interest Rate Sensitivity Measure Table of the OTS and by our internal evaluations utilizing the
FIMAC software. Management accomplished this goal for the past several years. The Bank's
interest rate risk profile has been neutral for several years with a modest asset sensitive position.
The Bank intends to remain modestly asset sensitive for the remainder of 2010 and heading into
2011. The Bank does not anticipate a significant change in the interest rate risk profile ofthe Bank
under a capital raise scenario.
2815 17
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Capital Plan Assumptions
Capital Preservation and Enhancement Strategies
Change From Prior Presentation
InvestorlInvestment Information
Bank Scenario 1 - $125 million Capital Raise
Bank Operating Model- $125 million Capital Raise
Bank Scenario 2 - $200 million Capital Raise
Bank Operating Model - $200 million Capital Raise.
Bank Scenario 3 - $65 million Capital Raise
Bank Operating Model- $65 million Capital Raise
Scenario 1- UWBK $125 million Capital Raise
UWBK Operating Model- $125 million Capital Raise
Scenario 2 - UWBK - $200 million Capital Raise
UWBK Operating Model- $200 million Capital Raise
Scenario 3 - UWBK $65 million Capital Raise
UWBK Operating Model- $65 million Capital Raise
UWBK 2010 Cash Flow Projections - $125 million Capital Raise
UWBK 2010 Cash Flow Projections - $200 million Capital Raise
UWBK 20 I 0 Cash Flow Projections - $65 million Capital Raise
UWBK 2011 Cash Flow Projections - $125 million Capital Raise
UWBK 2011 Cash Flow Projections - $200 million Capital Raise
UWBK 2011 Cash Flow Projections - $65 million Capital Raise
UWBK 2012 Cash Flow Projections - $125 million Capital Raise
UWBK 2012 Cash Flow Projections - $200 million Capital Raise
UWBK 2012 Cash Flow Projections - $65 million Capital Raise
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UNITED
. WESTERN
BANCORP
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Capital Plan Assumptions
Assumptions applicable to all scenarios
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Capital Preservation and Enhancement Strategies
~ Reduced personnel by 25 FTE in second quarter 2010.
~ Annualized savings achieved of $2.3 million in salaries.
~ Reduced Equity Trust deposits from $1 billion to $700 million;
will achieve savings of $7.4 million principally in subaccounting
fees.
~ . Will continue to negotiate for further reduction in Equity Trust
relationship to reduce concentration and for economic savings.
~ Continue with review of other operating expense line items for
additional cost savings.
~ Restrict new commercial loan originations to SBA group and high
quality commercial and industrial loans.
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UNITED
. WESTERN
. BANCORP
Changes From Prior Presentation
~ The Bank previously submitted capital plan to the
OTS on July 2, 2010.
~ At that time, capital raise was in early stage, one
~ scenario included possibility of not raising capital.
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~ Now, capital raise is deemed probable by
management.
~ Three scenarios included herein are $200 million,
$125 million and $65 million raised by UWBK
resulting in investment in Bank of $150 million, $90
million and $62 million prospectively.
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UNITED
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I.nvest.orlI.nve.stme:ot Information
Entered into confidentiality agreements with 27 parties


Seven parties expressed no interest
Multiple or ongoing with 12 parties
Parties include private equity 9.9% purchasers, 24.9%
purchasers, and bank charter owners that would acquire UWBK
and/or the Bank.
Letter of intent received from xx parties.
Capital committed by August 30, 2010.
Close transaction by September 30, 2010.
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WESTERN
. BANCORP
Bank Scenario 1- $125 million Capital Raise
~ UWBK raises $125 million.
~ Capital injected into Bank $90 million
Payoff Chase - $16.3 million plus interest.
Maintain cash for UWBK needs .. '
.Projected Bank Core Capital 8.9%; Risk Based Capital 16.3%.
Considers sale of all direct credit substitute MBS or transfer to
UWBK depending on investor, significantly de-risking the Bank
balance sheet.
Seek elimination of "meet and maintain" language under C&D' s,
thereby allowing the Bank to be deemed "well capitalized."
. Allow the Bank to increase assets (e.g. SBA loans, commercial loans,
agency securities) consistent with business plan that accompanies
capital raise of this magnitude.
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UNITED
WESTERN
- BANCORP
Bank Operating Model - $125 million C.apitalRaise
Interest Income
Interest Expense
Net Interest Income
Provision for Credit Losses
Noninterest Income I (Loss)
Noninterest Expense
Pre-Tax Income I (Loss)
Reversal of Valuation Allowance
Net Income I (loss)
Assets:
For the 3 Months Ending
31-Mar-10 30-.1un-10 30-Sep-10 31Dec-10 31-Mar-11 30-.lun-11 30-Sep-11 31Dec11 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12
$ 22,095 $ 22,250 $ 22,274 $ 23,443 $ 26,428 $ 27,360 $ 27,959 $ 29,037 $ 30,987 $ 31,818 $ 33,035$ 33,800
(5,763) (5,209) (5,665) (5.090) (5,324) (5.411) (5,5491 (5,671) (6,010) (6,142) (6,2291 (6,319)
16,331 17,041 16,609 18,353 21,104 21,949 22,409 23,367 24,977 25,676 26,806 27,481
(14,223) (4,731) (4,000) (1,200) (1,000) (1,250) (550) (550) (275) (275) (275) (175)
(2,218) (2,233) (51,209) 7,338 7,976 8,487 10,078 10,563 10,725 10,988 11,464 11,575
(21,968) (21,091) (18,350) (24,391) (24,304) (24,321) (24,455) (24,921) (24,940) (25,192) (25,617) (25,955)
(22,078) (11,014) (56,950) 100 3,776 4,865 7,482 8,459 10,487 11,197 12,398 12,926
10,000
$ (21,014L$ (56,950) $ 100 $ 3,123 $ 3,994 $ 17,482 $ 8,459 $ 10,487 $ 11,197 $ 12,398 $ 12,926
Cash $ 665,205 $ 262,801 $ 388,158 $ 292,815 $ 258,056 $ 150,000 $ 150,000 $ 170,228 $ 182,378 $ 197,646 $ 229,181 $ 171,338
GNMA's 68,803 158,108 146,250 216,862 285,357 409,852 422,556 434,879 442,061 461,178 494,989 559,319
Investments 342,511 308,781 197,464 184,984 176,291 167,598 158,904 150,211 143,269 136,327 129,385 122,443
Community bank loans 1,074,356 1,052,025 1,062,451 1,088,508 1,116,548 1,150,583 1,186,203 1,223,532 1,257,326 1,292,327 1,328,608 1,366,245
Other Loans 342,541 330,215 318,835 310,280 311,787 313,372 315,034 316,774 318,591 320,464 322,452 324,497
Allowance for CreditLosses , , (41,614)", (43,425) ,,'" (43,425) ", (43.4251", (43,425), (43.4251 (43,4251 (43,425) (43,150) (42,875) (42.600) (42,425)
.'=\6>:",,:;;;:;,,1';;;""" ,'-, -,;-".,,' ,.-'' ,_0,;-. " -;If'' ":'--"":',-,"":0"'-' """ ":,:'"O',,---',:"i(4l)'''''ll';'; '''''''S:t;lfc ',,--, '-"571fi"-:, ',' :'fSS-o;1If' -,'" "'169'326: "",'.uoj-0Uj'85F"-;1'lS'lf"'-Ol:' ", "'1"85'81,i[' -,,-'nt!i!' ...
"'!"";"'''''''''''' ..
$ 2,588,482 $ 2,204,805 $ 2,223,842 $ 2,350,955 $ 2,414,838 $ 2,456,798 $ 2,501,370 $ 2,574,847 $ 2,624,872 $2,694,744 $ 2.801,584 $ 2,841,587
Liabilities;
Total Deposits $ 2,153,418 $ 1,771.518 $ 1,757.919 $ 1,766.481 $ 1,813,332 $ 1,804,468 $ 1,830,088 $ 1.923,353 $ 1,962,532 $ 2,014,932 $ 2,095,468 $ 2,122.811

Other liebilities 13,286 13,484 13,070 31,668 33,081 32,793 33,614 36,727 38,225 40,348 43,866 45,198
Total liabilities 2,421,857 2,045,029 2,031,016 2,158,029 2,219,693 2,258,761 2,288,056 2,355,508 2,398,067 2,459,923 2,557,811 2,588,523
Equity 166,625 159,776 192,826 192,926 195,145 198,037 213,314 219,339 226,805 234,822 243,774 253,064
Total liabilities and Equity $ 2,588,482 $ 2,204,805 $ 2,223,842 $ 2,350,955 $ 2,414,838 $ 2,456,798 $ 2,501,370 $ 2,574,647 $ 2,624,872 $ 2,694,744 $ 2,801,584 $ 2,841,587
Capital contribution and securrites purchased $ 0 $ 0 $ 90,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Bank dividend to Parent $ 0 $ 0 $ 0 $ 0 $ 904 $ 1,102 $ 2,205 $ 2,434 $ 3,020 $ 3,181 $ 3,446 $ 3,635
Deposits
Community bank deposits
Equity Trust
MSCS
Le9ent
Brokered
Other
Trust and processin9 deposits
Total DepOSits
$ 545,893 $ 509,831 $ 507,035 $ 515,597 $ 524,527 $ 550,581 $ 576,201 $ 604,471 $ 634,695 $ 650,562 $ 666,826 $ 683,497
955,451 693,938 693,938 693,938 693,938 693,938 693,938 693,938 693,938 693,938 693,938 693,938
157,078 165,754 180,000 180,000 120,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
198,301 193,624 218,624 318,624 418,624 455,552 466,241 531,236 541,182 577,715 641,987 652,659
115,762 65,802 15,753 15,753 13,674 13,574 2,885 2,885 1,894 1,894 1,894 1,894
180,933 142,569 142,569 42,569 42,569 40,823 .40,8Z3 _40,823 40,823 40,823 40,823 40,823
16trr525 1 261 6117--'250884---1 250884 1288805 1 253,887 1 253887 1 318882 1327837 1 364370 1428642 1439314 ":.
$ 2:153:418 $ 1:771:518 iii 1:757:919 $ 1:766:481 $ <813:332 $ 1:804.466 $ 1:830:088 iii 1:923:353 iii 1:962:532 $ 2:014:932 $ 2:095:468 $ 2:122:811 ,\
I'V
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........
'j.

UNITED
WESTERN
, BANCORP
B nk S'" 2 $200 C '1 R It,
'a.',,_< cenarlO -", v, ',' ,ml Ion 'aplta :" alse
UWBK raises $200 million
Capital injected into Bank $150 million
Payoff Chase - $16.3 million plus interest.
Maintain cash for UWBK needs.
Projected Bank Core Capital 11.3%; Based Capital 20.8%.
Considers sale of all direct credit substituteMBS or transfer to UWBK
depending on investor, significantly de-risking the Bank balance sheet.
Seek elimination of "meet and maintain" language under C&Ds, thereby
allowing the Bank to be deemed "well capitalized."
Allow the Bank to increase assets (e.g. SBA loans, commercial loans, agency
securities) consistent with business plan that accompanies capital raise of this
magnitude. '
Capital ratios expected thereafter to increase from return to profitability and
elimination of substantial exposure to OTT!.
Management executes business plan.
' ..
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U'NITED,
WESTERN
BANCORP
Bank. Operating Model
$200 million Capital Raise
Interest Income
Interest Expense
Net Interest Income
ProvIsion for Credit Losses
Nonlnterest Income I (Loss)
Noninterest Expense
Pre-Tax Income I (Lass)
Reversal of Valuation Allowam:e
Net Income I (Loss)
Total liabilities and Equity
Capital contribution and securrItes purchased
Bank dividend to Parent

Community bank deposits
Equity Trust
MSCS
Legant
Brokered
other
Trust and processing deposits
Total Deposits
For the 3 Months Ending
31Mar.10 3O.Jun10 3O-Ssp-10 31Dsc-10 31-Mar11 3O.Jun-11 311-8sp-11 31Dac-11 31Mar-12 3C!.Jun12 3OSep-12 31-Dec.12
$ 22.095 $ 22.250 $ 22.396 $ 24.331 $ 28.176 $ 30.216 $ 31.605 $ 33.229 $ 35.356 $ 35.779 $ 36.316 $ 36.756
(5.763) (5.209) (5.665) (5.090) (5.447) (5.726) (5.983) (6.174) (6.509) (6.581) (6.574) (6.596)
16.331 17.041 16.730 19.241 22.729 24.489 25.623 27.054 28.647 29.198 29.742 30.160
(14.223) (4.731) (4.000) (1.200) (1.000) (1.250) (550) (550) (275) (275) (275) (175)
(2.218) (2.233) (51.209) 7.338 7.976 8.487 10.078 10.563 10,725 10.988 11.464 11.575
(21.968) (21.091) ___ _(24,45) (24.1121) (25.955)
(22.078) (11.014) (56.829) 988 5.401 7,405 10.695 12.147 14,357 14.720 15.334 15.605
10.000
$ (21.014) $ 11'.145) $ (56.829) $ 921 $ 4.423 $ 6.027 . $ 20,695 $ 12.147 $ 14.357 $ 14.720 $ 15.334 $ 14.540
$ 665.205 $ 262.801 $ 432,414 $
68.803 158.108 146.250
342.511 308.781 197,464
169.087 $
366.862
184;964
150.000 $
580.857
176.291
150.000 $ 150.000 $ 150.000 $ 150.000 $
638.431 694.278 748,450 725.996
167.598 158.904 150;211 143.269
1.382,228
150.000 $ 150.000 $
704.216 683.090
136.327 129.385
1.428.549 1.476.469
150.000
662.597
122.443
I\J
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UNITED
.. WESTERN
B.ANCORP
Bank Scenario 3 - $65 million Capital Raise
~ UWBK raises $65 million
~ Capital injected into Bank $61.725 million







Chase line of credit must be extended on longer term basis.
Cash declines at UWBK requiring earlier non-objection of dividends from
Bank to UWBK.
Projected Bank Core Capital 8.0%, Risk Based Capital 14.3%.
Considers sale of all direct credit substitute MBS or transfer to UWBK
depending on investor, significantly de-risking the Bank balance sheet.
Continue to resolve FDIC issues concerning brokered deposits.
Bank carefully monitors asset levels, which remain at or below June 2010
level until September 2012, in order to maintain required capital ratios,
modest SBA lending, commercial loans and agency securities.
Capital ratios expected to increase from return to profitability and elimination
of substantial exposure to OTT!.
Management executes business plan.
UWBK contemplates additional capital raising efforts.
, : ~ .
i\J
CD
OJ
o
,
..
I J II

Bank Operating Model- $65 million Capital Raise
Interest Income
Interest Expense
Net Interest Income
Provision for Credit Losses
Nonlnterest Income I (Loss)
Noninterest Expense
Pre-Tax Income I (Loss)
Reversal of Valuation Allowance
Net Income I (Loss)
For the 3 Months Ending
31"'ar-10 30-Jun-10 3O-sep-10 31.oec-10 31-Mar-11 3O-Jun-11 3O-sep-11 31-Dec-11 31-Mer-12 3O-Jun-12 3O-sep-12 31-Dec-12
$ 22,095 $ 22,250 $ 22,075 $ 22,555 $ 23,326 $ 23,464 $ 23,703 $ 24,285 $ 25,272 $ 25,811 $ 26,819 $ 27,343
. (5,763) (5,209) (5,477) (4,625) (4,502) (4,305) (4,314) (4,275) (4,353) (4,371) (4,387) . (4,403)
16,331 17,041 16,598 17,930 18,823 19,159 19,389 20,009 20,919 21,440 22,433 22,939
(14,223) (4,731) (4,000) (1,200) (1,000) (1,250) (550) (550) (275) (275) (275) (175)
(2,218) (2,233) (50,960) 7,551 8,129 .8,640 10,202 10,666 10,806 11,053 11,539 11,619
(21,968) __ i18,35()1_124,391L ___ . (2fi,19g>. (?5,617) (25,955)
(22,078) (11,014) (56,712) (110) 1,646 2,228 4,585 5,205 6,510 7,026 8,080 8,428
10,000
$ (21,014) $ (11,145) $ (56.712) $ (110) $ 1,420 $ 1,884 $ 4,585 $ 15,205 $ 6,510 $ 7,026 $ 8,080$ 8.428

Cash $ 665,205 $ 262,801 $ 313.799 $ 163.079 $ 150.000 $ 150,000 $ 150,000 $ 157.440 $ 160,928 $ 191.063 $ 221.709 $ 165,629
GNMA's 68,803 158.108 146.250 141,862 137,607 133.478 129,474 125,590 129,282 136.312 173.285 239,795
Investments 342,511 308.781 197.464 184,984 176.291 167,598 158.904 150.211 143.269 138,327 129,385 122,443
Community bank loans 1,074,356 1,052,025 1.037,120 1.037,384 1.045.475 1.082.112 1.079,323 1,097.137 1.113,260 1,129,843 1.146,905 1,164,466
Other Loans 342,541 330.215 318.835 310.280 311,787 313,372 315.034 316.n4 318,591 320.484 322.452 324,497
AUowanceforCreditLosses (41.614) (43.425) (43.425) (43,425) (43.425 (43.425) (43,425) (43,425) (43.150) (42,875) (42,600) (42,425)
'3<:''''''''''1 ,17 ,9 f'150.' .'
TolalAssets $ 2;588,482 $ 2.204.805 $ 2.123,589 $ 2.093.919 $ 2.086.538 $ 2.090,626 $ 2,090,340 $ 2.125.173 $ 2,145.261 $ 2,199,349 $ 2,289,162 $ 2.312,860
Ru!!!II!
Community bank deposits
Equity Trust
MSCS
Legant
Brokered
Other
Trust and processing deposits
Totel Deposits
$ 545,893 $ 509,631 $ 436,933 $ 412,929 $ 336.791 $ 340,829 $ 343,180 $ 346,930 $ 351,267 $ 355,658 $ 360,103 $ 364,605
955.451 693.938 693.938 693.938 693.938 693,938 693,938 693.938 693.938 693.938 693.938 693,938
157.078 165.754 180.000 180.000 120.000 50,000 50.000 50.000 50.000 50.000 50,000 50,000
198,301 193.624 218.624 198.824 273.624 310.552 321,241 386,236 396.182 432.715 496,987 507.658
115.762 65.802 15.753 15.753 13,674 13.574 2.885 2.885 1.894 1.894 1.894 1,894
180.933 142,569 142,569 42,569 42.569 40.823 40.823 40,823 40.823 40.823 40,823 40.823
1 607 525 1 261 687 1 250 884 1 130884 1143805 1 108 887 1 108 887 1 173882 1182 637 1 219370 1 283642 1 294 314
S 2:153:418 $ 1:m:518 $ 1:687:817 $1:543:813 $1:480:596 $1:449:716 $ 1:452:067 $1:520:812 $1:534:104 $1:575:028 $ 1:643:745 S 1:658:919
1
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~ J
UNITED
.
WESTERN
BANCORP
...... Scenario 1 UWBK - $125 million Capital Raise
~ Capital raise of $125 million.
~ UWBK would payoff Chase line of credit .
.. l;l -} UWBK retains sufficient cash to operate until Bank
'. ~ can pay dividends.
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PNITE,"O
""' WESTERN
" BANCORP
UWBK Operating M"odel- $,125 million C',apitalRaise
Interesllncome
Interest Expense
Nellnteresllncome
Provision for Credit Losses
Noninteresllncome I (Loss)
Noninterest Expense
Pre-Tax Income I (Loss)
Tax Expense
Net Income I (Loss)
Aill!!;
Cash & Agency Securities
Non-Agency Securities
Gross loans
Allowance for Credit Losses
B-D and Clearing Receivables
Other Assets
Total Assets
Liabilities:
Deposits
Customer, B-O and Clearing Payables
Borrowings
Other Liabilities
Total Liabilities
Trust Preferred Securities
Equity
T alai Liabilities and Equity
For the 3 Months Ending
3iMarl0 30.Jun10 30Sepi0 3l-Dec10 3lMar-11 30Jun11 30Sep11 31Dec11 31Mar12 30.Jun12 30Sep.12 31Dec.12
$ 22,461 $ 22,544 $ 22,596 $ 23,721 $ 26,691 $ 27,609 $ 28,193 $ 29,255 $ 31,190 $ 32,009 $ 33,214 $ 33,968
(6,657) (6,081) (6,139) (5,350) (5,642) (5,700) (5,788) (5,851) (6,218) (6,349) (6,421) (6,464)
15,804 16,463 16,457 18,370 21,049 21,909 22,405 23,403 24,972 25,660 26,792 27,504
(14,223) (4,731) (4,000) (1,200) (1.000) (1,250) (550) (550) (275) (275) (275) (175)
$(3,117) $(8,372) $(51,193) $ 7,523 $ 8,694 $ 9,249 $10,586 $11,108 $11,598 $11,906 $12,442 $12,570
(23,492) (23,450) (20,641) (26,697) (26,729) (26,767) (26,886) (27,350) (27,389) (27,657) (28,078) (28,413)
$(25,028) $(20,090) $(59,376) $(2,005) $ 2,014 $ 3,141 $ 5,555 $ 6,611 $ 8,906 $ 9,633 $10,881 $ 11,485
(19) 1 , ~ 7 1 309 272 (333) (561) 10,352 335 279 272 261 245
$(25,047) $(18,813) $(59,067) $(1,732) $1,681 $ 2,580 $15,906 $ 6,946 $ 9,185 $ 9,905 $11,143 $11,730
$ 814,905 $ 488,790 $ 598,316 $ 569,555 $ 600,598 $ 614,345 $ 624,357 $ 654,216 $ 671,340 $ 703,516 $ 766,653 $ 770,933
284,412 255,717 153,546 144,054 137,050 130,084 122,861 115,671 110,062 104,484 98,934 93,411
1,420,498 1,385,690 1,381,287 1,398,788 1,428,334 1,463,955 1,501,238 1,540,306 1,575,917 1,612,811 1,651,060 1,690,741
(41,614) (43,425) (43,425) (43,425) (43,425) (43,425) (43,425) (43,425) (43,150) (42,875) (42,600) (42,425)
o 0 0 140,580 151,834 157,414 158,018 169,326 169,851 175,130 185,814 186,481
131,589 134,411 169,579 175,841 173,885 167,377 110,663 110,600 172,547 173,293 113,279 174,165
$ 2,609,789 $ 2,221,183 $ 2,259,303 $ 2,385,393 $ 2,448,277 $ 2,489,749 $2,533,711 $ 2,606,695 $ 2,656,567 $ 2,726,359 $ 2,833,200 $ 2,873,313
$ 2,141,509
o
282,654
20,488
2,444,651
30,442
134,697
$ 2,609,790
$ 1,765,752
o
286,277
21,521
2,073,550
30,442
117,191
$ 2,221,183
$ 1,740,928
o
270,027
40,157
2,051,112
30,442
171,749
$ 2,259,303
$ 1,751,023
99,854
270,027
58,031
2,178,935
30,442
176,016
$ 2,385,393
$ 1,798,418
113,253
270,027
58,440
2,240,138
30,442
177,691
$ 2,448,277
$1,789,955
120,244
311,256
57,575
2,279,030
30,442
180,277 '
$ 2,489,749
$ 1,814,847
121,876
312,478
57,884
2,301,086
30,442
196,183
$ 2,533,711
$ 1,907,199 $ 1,944,996 $ 1,995,904
135,402 137,283 144,616
270,021 210.027 270,027
60,496 61,506 63,151
2,373,124 2,413,811 2,473,698
30,442 30,442 30,442
203,129 212,314 222,219
$ 2,606,695 $ 2,656,567 $ 2,726,359
$ 2,074,717
158,450
270,027
66,203
2,569,397
30,442
233,362
$ 2,833,200
$ 2,100,185
160,487
270,027
67,080
2,597,779
30,442
245,092
$ 2,873,313
-'
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UNITED
WESTERN
BANCORP
Scenario 2 UWBK _. $200 million Capital Raise
4
~ Capital raise of $200 million.
~ UWBKwouid payoff Chase line of credit.
~ . ~ UWBK maintains sufficient cash to operate until
~ . Bank can pay dividends.
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UNITED
WESTERN
.. BANCORP
UWBK Operating Model- $200 million Capital Raise
Interest Income
Interest Expense
Net Interest Incorne
Provision for CredK Losses
Noninterest Income I (Loss)
Noninterest Expense
Pre T ax Income I (Loss)
Tax Expense
Net Income I (Loss)

Cash & Agency Securities
Non-Agency Securities
Gross Loans
Allowance for CredK Losses
BD and Cleaiing Receivables
Other Assets
Total Assets
Uabililles:
Deposits
Customer, B-D and Clearing Payables
Borrowings
other Liabilities
Total
Trust Preferred Securities
Equity
Total UabDities and Equity
For the 3 Months Enciing
31-Mar10 3O.Jun10 3O-Sep10 31-Dec-10 31-Mar11 3O.Jun11 38-Sep-11 31-Dec11 31Mar12 3O.Jun12 3O-8ep-12 31.1)ec.12
$ 22,461 $ 22,544 $ 22,118 $ 24,609 $ 28,440 $ 30,465 $ 31,840 $ 33,446 $ 35,559 $ 35,910 $ 36,495$ 36,923
(6,657) (6,081) (6,139) (5,350) (5,766) (6,015) (6,221) (6,355) (6,717) (6,788) (6,767) (6,741)
15,804 16,463 16,579 19,258 22,674 24,450 25,618 27,091 28,842 29,182 29,728 30,182
(14,223) (4,731) (4,000) (1,200) (1,000) (1,250) (550) (550) (275) (275) (275) (175)
$(3,117) $(8,372) $(51,193) $7,523 $ 8,694 $ 9,249 .$10,586 $11,108 $11,598 $11,906 $12,442 $12,570
(23,492) (23,450) (20,641) (26,691) (26,729) (26,767) (26,886) (21,350) (27,389) (27,657) (28,078) . (28,413)
$(25,028) $(20,090) $(59,255) $(1,117) $ 3,639 $ 5,682 $ 8,168 $10,299 $12,776 $13,156 $13,817 $14,164
1W _ 0- m ill _
$(25,047) $(18,813) $(58,946) $(911) $ 2,981 $ 4,612 $19,120 $ 10,634 $13,055 $ 13,428 $14,079 $13,344
$ 814,905 $ 488,790 $ 642,572 $ 595,807 $ 788,042 $ 842,924 $ 896,079 $ . 947,558 $ 922,896 $ 898,908 $ 875,574 $ 852,873
284,412 255,717 153,546 144,054 137,050 130,084 122,861 115,671 110,062 104,484 98,934 93,411
1,420,498 1,385,690 1,396,795 1,432,699 1,478,984 1,533,305 1,591,549 1,654,1831,700,817 1,749,033 1,798,921 1,850,578
(41,614) (43,425) (43,425) (43,425) (43,425) (43,425)' (43,425) (43.425) (43,150) (42,875), (42,600) (42,425)
o 0 0 140,580 151,834 157,414 158,018 169,326 169,851 175,130 . 185,874 186,487
131,589 134,411 169,936 176,621 174,898 168,417 171,566 171,682 173,671 174,519 174,536 175,523
$ 2,609,789 $ 2,221,183 $ 2,319,424 $ 2,446,336 $ 2,687,383 $ 2,788,718 $ 2,896,648 $ 3,014,995 $ 3,034,148 $ 3,059,200 $ 3,091,239 $ 3,116,448
$ 2,141,509 $ 1,765,752
,0 0
282,654 286,277
20,488 21,521
2,444,651 2,073,550
$ 1,728,553
o
270,027
40,157
2,038,737
$ 1,738,648 $ 1,785,609 $ 1,776,469 $ 1,800,290 $ 1,891,412 $ 1,927,919
99,854 113,253 120,244 121,876 135,402 137,283
270,027 447,324 547,061 610,108 610,562 577,262
58,031 58,440 57,575 57,884 60,496 61,506
2,166,560 2,404,626 2,501,349 2,590,159 2,697,872 2,703,970
$ 1,977,653
144,616
530,174
63,151
$ 2,055,487
158,450
453,414
66,203
2,715,594 . 2,133,555
$ 2,060,448
160,487
437,404
67,080
2,745,420
30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442
134,697 117,191 250,245 249,334 252,315 256,928 276,047 286,681 299,736 313,164 327,242 340,586
$ 2,609,790 $ 2,221,183 $ 2,319,424 $ 2,446,336 $ 2,687,383 $ 2,788,718 $ 2,896,648 $ 3,014,995 $ 3,034,148 $ 3;059,200 $ 3,091,239 $ 3,116,448
I\J
00
w
U1
~ J
UNITED'
WESTERN
BANCORP
Scenario 3 UWBK - $65 million Capital Raise
~ UWBK raises $65 million
. Chase' must be extended on longer term basis.
Cash declines at UWBK requiring earlier non-objection of
dividends from Bank to UWBK.
Considers sale of all direct credit substitute MBS or
transfer to UWBK depending on investor, significantly
de-risking the Bank balance sheet.
UWBK contemplates additional capital raising efforts .
. ,
,
YJJJ
UNIT. E.
D
WESTERN
~ BANCORP
Scenario 3 UWBK - $65 million Capital Raise
N
Interest Income
Interest Expense
Nellnterest Income
Provision for Credit Losses
Noninterest Income I (Loss)
Noninterest Expense
ex> Pre-Tax Income I (Loss)
W
0'1 Tax Expense
Net Income I (Loss)
~
Cash & Agency Securities
Non-Agency Securities
Gross Loans
Allowance for Credit Losses
BD and Clearing Receivables
Other Assets
T olal Assets
Liabilities:
Deposits
Customer, BD and Clearing Payables
Borrowings
Other Liabilities
Total Liabilities
Trust Preferred Securities
Equity
Total Liabilities and Equity
For the 3 Months Ending
3iMari0 30.Juni0 30-Sep-10 3i0eci0 3iMarii 30Jun11 30Sep.11 31Dec11 31Mar12 30.Jun12 30Sep.i2 31.0ec.12
$ 22,461 $ 22,544 $ 22,397 $ 22,833 $ 23,589 $ 23,713 $ 23,937 $ 24,502 $ 25,475 $ 26,002 $ 26,999 $ 27,511
(6,657) (6,081) (6,004) (5,000) (4,948) (4,736) (4,712) (4,632) (4,751) (4,782) (4,796) (4,777)
15,804 16,463 16,393 17,833 18,641 18,977 19,225 19,871 20,724 21,220 22,203 22,733
(14,223) (4.731) (4,000) (1,200) (1,000) (1,250) (550) (550) (275) (275) (275) (175)
$(3,117) $(8,372) $(50,944) $ 7,735 $ 8,847 $ 9,402 $10,710 $11.211 $11,679 $11,970 $12,496 $12,614
(23,492) (23,450) (20,641) (26,697) (26,729) (26,767) (26,886) (27,350) (27,389) (27,657) (28,078) (28,413)
$(25,028) $(20,090) $(59,191) $(2,329) $(241) $ 361 $ 2,499 $ 3,181 $ 4,739 $ 5,258 $ 6,346 $ 6,759
(19) J,277 316 288 118 (5) 383 10,370 317 313 305 290
$(25,047) $(18,813) $(58,875) $(2,041) $(123) $ 356 $ 2,882 $13,551 $ 5,056 $ 5,571 $ 6,651 $ 7,050
$ 814,905 $ 488,790 $ 523,957 $ 364,819 $ 344,792 $ 337,971 $ 331,275 $ 332,138 $ 337,090 $ 372,067 $ 437,478 $ 445,700
284,412 255,717 153,546 144,054 137,050 130,084 122,861 115,671 110,062 104,484 98,934 93,411
1,420,498 1,385,690 1,355,955 1,347,664 1,357,262 1,375,484 1,394,358 1,413,912 1,431,851 1,450,327 1,469,357 1,488,962
(41,614) (43,425) (43,425) (43,425) (43,425) (43,425) (43,425) (43,425) (43,150) (42,875) (42,600) (42,425)
o 0 0 140,580 151,834 157,414 158,018 169,326 169,851 175,130 185,874 186,487
131,589 134,411 168,997 174,666 172,464 166,050 159,594 169,399 171,251 171,831 171,735 172,450
$ 2,609,789 $ 2,221,183 $ 2,159,030 $ 2,128,357 $ 2,119,977 $ 2,123,577 $ 2,122,681 $ 2,157,021 $ 2,176,955 $ 2,230,963 $ 2,320,778 $ 2,344,586
$ 2,141,509 $ 1,765,752 $ 1,678,968 $ 1,534,191 $ 1,470,241 $ 1,438,665 $ 1,440,357 $ 1,508,476 $ 1,521,174 $ 1,561.534 $ 1,629,716 $ 1,644,383
0 0 0 99,854 113,253 120,244 121,876 135,402 137,283 144,616 158,450 160,487
282,654 286,277 291,557 293,961 338,439 367,347 360,720 299,314 299,870 300,362 300,654 300,836
20,488 21,521 38,023 51,910 49,725 48,647 48,170 48,722 48,464 48,717 49,572 49,445
2,444,651 2,073,550 2,008,547 1,979,915 1,971,658 1,974,902 1,971,124 1,991,913 2,006,791 2,055,228 2,138,392 2,155,150
30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442 30,442
134,697 117,191 120,041 118,000 117,877 118,233 121,115 134,666 139,722 145,293 151,944 158,994
$ 2,609,790 $ 2,221,183 $ 2,159,030 $ 2,128,357 $ 2,119,977 $ 2,123,577 $ 2,122,681 $ 2,157,021 $ 2,176,955 $ 2,230,963 $ 2,320,178 $ 2,344,586
N
(X)
W
;,,;J

UNITED
WESTERN
BANCORP
UWBK 2010 Cash Flow Projections
$125 million Capital
2010 Cash FI..,.... Proj.cUOD
CJlpeDl. .... Ba.I. .... c:::e, -Cash

2010 So ..... ce.:
Dividends fi"o:rn Bank
Dividends :fi:'oxn. o-ther subisidi..,ries - see b_lovv
Tax. paynien:ts :6:-cn:n. Su.bsidiaries
Capi'ta.l raise - "net of'issuance cosu
:In:'t.ereat iDcO%D.e - Trus"t. Prefterrec1.
NOL Carry back
Option Exercise .
Securities exch.anged for Equity Trust Note - cash flovvs - UVVl
Equity Trust Note. @.3.25%. 7 yr a:rn _ Interest
Equity Trust Note. @ 3.25%. 7 yr a:rn - principa1
BorrovviDgs on LOC
Borro'W'ings on advancing line
payn::aen:ts - net A/P .AIR.
C)'ther Sources .
'rcrt.a.l
2010 V.es:
Pa.yroll related. ca.sh acti"i1:y
for su.bsidiaries and. hold.iJ::LS COXXlpan.y - cash. ex.penses
Ca.pital ContributiOons' to Su.bs
Xn:terest 013 Trust. Pre:ferre:cl
In:t.eres:t pa.yzx:aents on Su.b Debt
:Interest payzn.ents 0'0 LOC .
Tax to XR.S States
Tax. payx:n.ent:s tOo Su.bsidiaries
R.lOpa.:y:rnents OD. .Chase LOC (D>&turIOS on 9130/10)
Total Uses
Total. C_ ... BaI_ace
C_sh So .. rce 6"0 ... N'o .. -B.nk Subsl.cl.l.arl.s:
B,p1corp TraclinS
't..TW" Asset.
Eq1.l.ilv.lOor aea:inD.in.s aalance
(l:C pa.:y:rnentsn.<Usc)
Bquil\l.[or security' cash fio'VVs
Paid.eia NOote - :b:l:teres1:
Patclei .. Note - principal
End.ina Balance
Cash. 1:rans:Cerred/diviclen.clto UVV"EIX :frO:JtD EquiJ!rv.[or
Cash. tc::. UVV"EI:I iroXX1 and U'VV' Asset
RefinanciD.s: ofDebt/Ca11 ofTru.st Preferred
Total Ciash ....... Non-Bank. Subs:
TOT.AL CA.SE[ A. V AILABLE TO VVVDI
s 9.551.270
Actua.
s 6.656.011.
Ael;ua.1
S 1.868.903
EstiJna.ate
S 18.925.290
Esti:a:aate
Qu.arter Second Th.ird Quarter Pou.rth
2010 ... 2010 2010 Quarter 2010
2.000.000 2.713.486 :.
650.000
119.625.000
5.605 21.018 :5 .. 71. 24.407

583.851 440.071 .443.499 361.196
32.492 31.924 20.296
153.413 153.413 3.051.138
Total 2010
4.713.486
650.000
119.625.000
56.747
12.118.000
1.828.617
84.712
3.357.963
1.493.130 1.955.471 737.747 1.024.547 5.210.895
17.959 17.959
2.93.6.450 4.601.895 138,.714.884 1.410.150 1-47;-663 .. 379
973,508 573.680 596.097 751.097 2,894.383
1.871.820 3.051.675 1.263,522 1.569.980 7.756.996
3.250.000 90,000.000 93.250.000
186.628 815.843 740.592 1.743.062
77,449 74.136 76.045 76.045 303.675
222.304 3_,012 288.991 855.307
195.500 250.000 445.500
650.000 12.118.000 12,768,000
2.500.000 1.250,000 16.250.000 20.00.0.000
5.831.709 9.389.003 121.658.497 3.137.714 140.016.923
6.656.011 1.868.903
150.423
68,494
147.242
66,244
2.055.697 2.988.911 3.670,920 942.121 2,055.697
(14.606) (6.250) (3.500.000) (3.520.856)
857,100 642.900 703.162 660,573 2.863.735
28.941 14.908 22.362 22.362 88.573
61,779 30:.452
2.988.911 10.393.231 942.121 1.670.734 1.670.734
(1.000.000) (2.500.000)
(213.486)
3.207.8::?8 2,884,406. 942,1?-1. 1.0570,734
N
00
W
.00

UNITED
WESTERN
BANCORP
UWBK 2010 Cash Flow Projections
$200 million Capital
2010 Casb lFIn'V Projection
capenina _ .. Cash
las.
2010 Sourc :
Dividends ftOXD Bank
Dividends froz:n. o'ther subsidiaries - see below
Tax. iroOZD Subsidiaries
Capital raise - net' of issuance casots
Xn'teres1: inco:rne - Tru.s't Pre:fOrrect
NOL Carry back .
Option Bxercise
Securities ex.chanaecl for Equity" Trust No'te - cash :fl.o'YVS - T.J"Wl
Bqui:t:y Trust Note. @. 7 yr IiU'D - Ia.teres't
Equity ]:'to.fot:e. @ 3.25'94. 7 yr ax:n. - prinCipal
payznents - :ae't .A/P.A/R .
O"ther Source.
To'tal Sources
2010 Vses:
Payroll related. cash a.c't:ivi"ty
.A/'J? for su.bsidiaries and. hold.b:J.S corn.paa:y - expenses
Capi'Cal Con:tributioDs 'to Su.bs "
I:n:'teres't OD. TrI..:I.st Pre:fi!u"red
Interest: pa'YD1CD"'Cs on Su.b Debt
:In'tetreS1: payn::J.ents on LOe
Tax. payx:n.eD.'t8 "Co :IRS &. States
Tax. pa-yD:1onu t.o Su.bsidiaries
R.ep_yznents on Chase LOC (:n:a.a.tu.res 00. 6/30/10)
Total Uses
TOEaI C.s .. __ ....
c_ ... Source 6"'0 .... Non-Bank. S ... bslcl. ... rl :
Ban.corp Trading
UVV"Asse1;
Equ..i.l\l.[or Bala.n.ce
(l:C
Equilv.[or securi"ty cash flOVVB
Pa.:icieia. No"te - Interest:
PaicJ.eia Note - principato
BquUodor BudinII' Balance
Cash t:ra.:a.sferred./d.ividend"Co fi:OD3 Equ.iJ.V,[or
Cash 1:rar.a.sfer:red/cU:videncl "to 1:..TVV'BJ: fi:001":Q and. 't...TVV .Asset
Refina.o.cinS of'Debt:/Ca.ll of Trust. Preferred.
"'rota. Ca." 6-0'" :r-ifon-B __ k Sub.:
TO>TAL CAS:&: A'V.AILA.HLE TO>
C .. rrene _. __ Dee
C::hase LOC::
s 9 .551.270
Ac:t .... 1
s 6.656.011
Act ......
S 1.868.903
EsCl.Jl:aaee
S 31.300.290
E.u....._te
31.300.290
Firat: Quarter Second 'Tbl.rd Q ..
20:10 ou.ar1l:er 2010 2010 O ... _r 2010 Total 2010
2.000.000 2.713.486 4.713.486
192.000.000 192.000.000
5.605 21.018 5.718 24.407 56.747
6.50,,000 12,,118.000 12.768.000
583.851 440.071 443.499 361.196 1.828.617
32.492 31.924 20.296 84.712
153.413 153.413 3 ..051,,138 3.357.963
1.493.130 1.955.471 737.747 1.024.547 5.210.895
17,959 17.959
2.936.450 4.601.895 211.089.884 1.410.150 220.038.379
973.508 573.680 596.097 7:51.097 2.894.383
1.871.820 3,051.675 1.263.522 1.569.980 7.756.996
3.250.000 150.000.000 153.250.000
186.628 815.843 740 .. S92 1,743,062
77.449 74.136 76.045 76.045 303.675
222.304- 344,012 288.991 855.307
195,.:500 250.000 445.500
650.000 12,118.000 12.768.000
2.500.000 1.250.000 16.250.000 20.000.000
5.831.709 9.389.003 1 8 1.65 8.497 3.137.714 200.016.923
-- --- -
lS0.423 147.242
68.494 66 ..244
2.055.697 2.988.911 3.670.920 942.121 2.055.697
(14.606) (6.250) (3.500.000) (3.520.856)
857,100 642.900 703.162 660.573 2.863.735
28.941 14.908 22.362 22.362 88.573
61.779 45.677 ..,.5.677 183.58S
2.9-88.911 3.6.70.920 1.670.734
(1.000.000) (2.500.000)
(213.486)
3.207 .. ..406_ 1.670 .. 734
32,,242.411 31;243,460 31,243.460
17.500.000 16.250.000
16;250;000
N
ex>
.w
. (;0
YII'
UNITED
WESTERN
BANCORP
UWBK 2010 Cash Flow Projections - $65 million Capital Raise
2010 Cash Flo"", ProjecUon
Ope .. ' ............ ce .. Cash
.0 __ las.
2010 Sourc .. :
Dividends :troD>. Bank
frozn o'ther SUbsidiaries - see belo"","
Tax payxnents ftozn Subsidiaries
Capital raise net of' costs of issua:n.ce
XD.teres'l: incOXXJ.e - Trust P're.rrecS'
N01.. Carry back
Option Exercise
Securities exchanged "or Equity' Trust Note - cash :flovva - UVV1
Bqu.ity Trust Note. @ 7 yr &a:1 - b:a:terest
Equ.ity Trust 'l'-oTote. @ 3.2S%'. '7 yr a.D1 - principa.l
Su.bsidiary payxnen:ts - net .A./P,.A/R.
C>ther Souroes
Total Sources
2010 Use
Payroll related cash activity
A/P i!br su.bsidiaries holding corn.pan:y - cash expenses
Capi.'Cal Con'triibu.tion.s to Subs
Interest .olD. "Y'ru.st Preferred
Xn.:teres1: pa.yro.ents .on S"""D :r:>eb1:
:Interest P_y:D1eD.ts cn. LOC '
Tax. payxr:uu::.:ts to :IR.S &. States
Tax. pays%1OS11:S too Su.'bsic:liaries
R.ep_yroeD.'ts on Chase LOC (lEJO.&tu.res on 6/30/10)
Total 'LJ"ses
Ca_ .. B_I .... ce
Cas" Source 1rOo ... Non-Bank. Subsl.d.l_rl.es:
Bancorp Tradina
't..TVV .A.sset
Equibv.l:or Be,sin.n.ins Balance
(XC payn>.entlSl'l'disc)
secu.ri"ty cash fto"W'S
Paid.eia. Note - Xn.terest
Paic:;loia 2'rote -'prinCipal
Bquil!v.[or Bnd.ina Ba,Iiu:J.ce
Cash transferred/dividend. to 't...T"\1VEI:I ::fi-OJXl Equ.il'v.[or
Cash. transfi!nrrecVclividen.d. to 'UVVBX ::fi-OD1 and UVV .A.sset
R.eftoaD.Qina of J:li'ebtlCal1 of Trust Preferred
Toc'" Ca ... 6-0 ... No .. -Bank S .....b.:
TeT A.L CA.S_ A. V .ADL..A8LE Te UVVUIl
Cur ....e ... t ........ ce
Cha.seLOC
s 9.551.270
Ac:: ....... 1
s 6.656.011
A-.=l::o_1
S 1.847.88S __ 6"..all'& S 4.339.397 __
Flrs-': Quar*-er Second Third. P'our&h
2010 Qu.arter 2010 Quart.r 2010
2.000.000 2.713.486 750.000
650.000
61.725 ..000
S.605
12.118.000
Tot_ 2010
5.463.486
650.000
61 .. 725.000
5.605
12.11.8.000
583.851 440.071 443.499 361.196 1.828.617
32.492 31.924
153.413 153.413
20.296
3.051.138
84,.712
3.357.963
1.493.130 1.955.471 737.747 1.024.547 5.210.895
17.959 17,959
1.652.522 2.633.209 62.252.169 408.587- 66.946.4-l!:f7'
973.508 573.680
1.871.820 3::o051.67S
3.250.000
186.628
77",449 74.136
222.304- 344.012
,195.500
650.000
2.S00.000 1.2.50,,000
881.387 5.167.533
596.097
1 ..263.522-
61,725,.000
76.045
288.991
250.000
12.118.000
2.000.000
63.359.107
751.097
1.569'.980
76.04S
266.996
500.000
803.665
2.894.383
7.756.996
64.975.000
186.628
303.67S
1.122.303
445.500
12.768.000
6.250.000
70.21 1 .6,92
6.656.011 1.847.885 4.3.39 .397 4 4.351 .32Z
150.423,
68.494
147.242
66.244
2.05S.697 2.988.911 2.884.406 942.121
(14.606) (6.250)
857.100 642.900 703.162 660.S73
28.941 ,14.908 22.362 22.362
61.779 _45.677 45.677
2.988.911 3.670.920 3.65S.607 1.670.734
(1.000.000) (2.500.000)
(213.486)
(750.000)
2.055.697
(20.856)
2.863.73:5
88.573
183.585
5.170.734
(4.250.000)
(213.486)
920.734
9.863,83.?'_ _ 5,2"72,055
17.500.000 16.250.000 14.250.00'0 13.750.000 13.750.000
:1.-7';:500.000 16,,250,,000 14,,:Z-50,000 1.3.750.000
UWBK 2011 Cash Flow Projections
2011 Cash Flow Projection
Opening Cash Balance 17,197,726
estimate
First Quarter
2011 Sources; 2011
Dividends from Bank
Dividends from other subsidiaries
Tax payments from Subsidiaries 500,000
Capital raise - net of issuance costs
Interest income - Trust Preferred 3,399
Option Exercise
tv
Securities exchanged for Equity Trust Note - cash flows
283,216
ex>
Subsidiary payments - net AlP .AlR
1,208,758
~
Other Sources
0
Total Sources
1.995,373
2011 Uses;
Payroll related cash activity
751.097
AlP for subsidiaries and holding company - cash expenses 1.852.258
Capital Contributions to Subs
Interest payments on Trust Preferred 111.377
Interest payments on Sub Debt 76,045
Interest payments on LOC
Interest payments on New Borrowings 75.000
Tax payments to IRS
Total Uses 2.865,777
Total Cash Balance 16.327.322
Cash Source from Non-Bank Subs:
Equi-Mor Beginning Balance 1,670,734
Equi-Mor security cash flows 634,724
Paideia Note - Interest 22,362
Paldeia Note - principal 45.678
Equi-Mor Ending Balance 2,373,497
Total Cash from Non-Bank Subs: 2,373,497
TOTAL CASH AVAILABLE TO UWBI
YJJJ
UN,I,'TE,D
WESTERN
" BAN CORP
$125 million Capital
16,327,322 14,182,834 13,276,244
estimate estimate estimate
Second Third Quarter Fourth
Quarter 2011 2011 Quarter 2011 Total 2011
-- --
500,000 750,000 1,000,000 2,750,000
3,504 1,176 8,079
216,067 137.760 62,491 699,534
2,013,631 825.774 1,051,185 5,099,348
2.729.698 1.717.038 2.114.852 8.556.961
596,097 596.097 906.097 2,849.389
3,085,618 1.265,388 1,610,799 7.814,063
740,592 109,432 740,592 1.701.994
76,045 76,045 76,045 304,179
75.833 76,667 76.667 304.167
300,000 500,000 1,250.000 2.050.000
4,874.185 2,623,629 4,660,200 15,023,792
14,182,834 13,276,244 10.730,896 10.730.896
2,373,497 3,052.587 3,710,734 1.670,734
611,050 590,108 572,573 2,408,455
22,362 22,362 22,362 89,448
45,677 45,677 45.677 182
1
709
3.052,587 3,710,734 4.351.346 4,351,346
3,052,587 3,710,734 4,351.346 4,351,346
- - - - - - - - - . ~ . - - - - --.- .. -.. - - - - - ~ - -
IV
,00

1-'-1
I

UWBK 2011 Cash Flow Projections million Capital
2011 Cash Flow Projection
Opening Cash Balance
2011 Sources:
Dividends from Bank
Dividends from other subsidiaries
Tax payments from Subsidiaries
Capital raise - net of issuance costs
Interest Income - Trust Preferred
Option Exercise
Securities exchanged for Equity Trust Note - cash flows
Subsidiary payments - net AlP ,AIR
Other Sources
Total Sources
2011 Uses:
Payroll related cash activity
AlP for subsidiaries and holding company - cash expenses
Capital Contributions to Subs
Interest. payments on Trust Preferred
Interest payments on Sub Debt
Interest payments on LaC
Interest payments on New Borrowings
Tax payments to IRS
Total Uses
Total Cash Balance
Cash Source from Non-Bank Subs:
Equi-Mor Beginning Balance
Equi-Mor security cash flows
Paidela Note - Interest
Paideia Note - principal
Equi-Mor Ending Balance
Total Cash from Non-Bank Subs:
TOTAL CASH AVAILABLE TO UWBI
29,572,726
estimate estimate
First Quarter Second
2011 Quarter 2011
1,000,000 1,000,000
3,399
283,216 216,067
1,208,758 2,013,631
2,495,373 3,229,698
751,097 596,097
1,852,258 3,085,618
111,377 740,592
76,045 76,045
75,000 75,833
600,000 600,000
3,465,777 5,174,185
28,602,322 26,657,834
1,670,734 2,373,497
634,724 611,050
22,362 22,362
45,678 45
1
677
2,373,497 8.483,944
2,373,497 3,052,587
30,975,819 29,710,421
26,657,834 26,001,244
estimate estlm.lte
Third Quarter Fourth
2011 Quarter 2011 Total 2011
1,500,000 2,150,000 5,650,000.
3,504 1,176 8,079
137,760 62,491 699,534
825,774 1,051,185 5,099,348
2,467,038 3,264,852 11,456,961
596,097 906,097 2,849,389
1,265,388 1,610,799 7,814,063
109,432 740,592 1,701,994
76,045 76,045 304,179
76,667 76,667 304,167
1,000,000 1,500,000 3,700,000
3,123,629 4,910,200 16,673,792
26,001,244 24,355,896 24,355,896
3,052,587 3,710,734 10,807,551
590,108 572,573 2,408,455
22,362 22,362 89,448
45,677 45.677 182,709
10.477,943 12,419,518 12,419,518
3,710,734 4,351,346 4,351,346
29,711,977 28,707,242 28,707,242
IV
CO
.j:::.
IV

UNI.TE .... ,.D ..
WESTERN
BANCORP
UWBK 2011' Cash Flow Projections - $65 million Capital Raise
2011 Cash FloVII Projection
Opening Cash Balance
2011 Sources:
Dividends from Bank
Dividends from other subsidiaries
Securities exchanged for Equity Trust Note - cash flows
Subsidiary payments - net AlP ,AIR
Other Sources
Total Sources
2011 Uses:
Payroll related cash activity
AlP for subsidiaries and holding company - cash expenses
Capital Contributions to Subs
Interest payments on Trust Preferred
Interest payments on Sub Debt
Interest payments on LOC
Interest payments on New Borrowings
Tax payments to IRS
Tax payments to Subsidiaries
Repayments on LOC
Total Uses
Total Cash Balance
Cash Source fro", Non-Bank Subs:
Equi-Mor Beginning Balance
Equi-Mor security cash flows
Paideia Note - Interest
Paideia Note - principal
Equi-Mor Ending Balance
Cash transferred/dividend to UWBI
Funds from sale of Matrix Funding lots
Refinancing of Debt/Call of Trust Preferred
Total Cash fro", Non-Bank Subs:
TOTAL CASH AVAILABLE TO UWBI
Current Balance
Chase Line of credit
4,351,322 3,529,033 1,793,843 636,659
estil7Jate estil7Jate estil7Jate estimate
First Quarter Second Third Quarter Fourth
2011 Quarter 2011 2011 Quarter 2011 Total 2011
433,000 505,000 1,373,000 1,482,000 3,793,000
1,000,000 500,000 1,500,000
283,216 216,067 . 137,760 62,491 699,534
1,208.758 2.013.631 825.774 1,051,185 5,099.348
2.924,974 3,234,698 2,336,534 2,595,676 11,091,882
751,097 596.097 596,097 906,097 2,849,389
1,852,258 3,085.618 1,265,388 1,610,799 7,814,063
76,045 76,045 76,045 76,045 304,179
242,862 236,294 229,523 220,154 928,833
75,000 75,833 76,667 76,667 304,167
250,000 400,000 750,000 800,000 2,200,000
500,000 500,000 500,000 500,000 2,000,000
3,747,262 4,969,887 3,493,719 4,189,762 16,400,631
3,!,;;29,O33 __ (957,428) ----.1957,42ID
920,734 1,623,497 802,586 1,460,734 920,734
634,724 611,050 590,108 572,573 2,408,455
22,362 22,362 22,362 22,36289,448
_ A.1?77 45&V_ __ 182,709
1,623,497 2,302,587 1,460,734 2,101,346
(1,000,000) (500,000) (1,500,000)
623,497 802,586 1,460,734 2,101,346 2,101,346
7,725,313 4,355,584 2,158,634 2,158,634
13,250,000 12,750,000 12,250,000 11,750,000 11,750,000
13,250,000 12,250,000 11,750;0'00 11 ,750,000
N
00
.j:::.
W

J
D ...
WESTERN
. BAN CORP
UWBK 2012 Cash Flow Projections $125 million Capital
2012 Cash Flow Projection
Opening Cash Balance 10,730,896 10,406,722 9,534,721 9.288,271
estimate estimate estimate estimate
First Quarter Second Quarter Third Quarter Fourth Quarter
2012 Sources: 2012 2012 2012 2012 Total 2012
Dividends from Bank
Dividends from other subsidiaries 500,000 400,000 350,000 350,000 1,600,000
Tax payments from Subsidiaries 1,800,000 2,000,000 2,200,000 2,500,000 8,500,000
Monitization of NMTC's (Dividend from CFF)
Interest income - Trust Preferred
5,605 26,735 3,390 35.730
Option Exercise
Securities exchanged for Equity Trust Note - cash flows 12,595 12,595
Subsidiary payments - net AlP ,AIR
1,240,185 2,065,985 847.244 1,078,516 5,231.931
Other Sources
Total Sources
3,558,385 4,465.985 3,423,980 3,931,906 15.380.256
2012 Uses:
Payroll related cash activity
906,097 596,097 596,097 906,097 3,004,389
AlP for subsidiaries and holding company - cash expenses 1,900,417 3,165,844 1.298,288 1,652,680 8,017,229
Capital Contributions to Subs
Interest payments on Trust Preferred
Interest payments on Sub Debt 76,045 76,045 76.045 76,045 304,179
Tax payments to IRS 1,000,000 1,500,000 1,700,000 1,500,000 5,700,000
Total Uses 3.882,559 5,337;986 3,670,430 4,134,822 17,025,797
Total Cash Balance 10,406,722 9,534,721 9.288,271 9,085,355 9,085,355
Cash Source from Non-Bank Subs:
Equi-Mor Beginning Balance 4.351.346 4,431.770 4,541,245 4,632,670 4,351,346
Equi-Mor security cash flows 512,384 441,436 373,386 306,176 1,633,382
Paideia Note - Interest 22.440 22,362 22.362 22,362 89,526
Paideia Note - principal 45,599 45.677 45.677 45,677 182,631
Equi-Mor Ending Balance 4,931,770 4.941.245 4,982.670 5,006,886 6,256,886
Cash transferred/dividend to UWBI from E-mor (500.000) (400,000) (350,000) (350,000) (1,600,000)
Funds from sale of Matrix Funding lots
Refinancing of Debt/Call of Trust Preferred
Total Cash from Non-Bank Subs: 4,431,770 4.541,245
-
4,656,886 4,656;886
TOTAL CASH AVAILABLE TO UWBI
N
00
.j:::.
.j:::.
YIIJ
UNITED
. WESTERN
. BANCORP
UWBK 2012 Cash Flow Projections
$200 million Capital
2012 Cash Flow Projection
Opening Cash Balance
2012 Sources:
Dividends from Bank
Dividends from other subsidiaries
Tax payments from Subsidiaries
Monitization of NMTC's (Dividend from CFF)
Interest income - Trust Preferred
Option Exercise
Securities exchanged for Equity Trust Note - cash flows
Subsidiary payments - net AlP,AlR
Other Sources
Total Sources
2012 Uses:
Payroll related cash activity
AlP for subsidiaries and holding company - cash expenses
Capital Contributions to Subs
Interest payments on Trust Preferred
Interest payments on Sub Debt
Tax payments to IRS
Total Uses
Total Cash Balance
Cash Source from Non-Bank Subs:
Equi-Mor Beginning Balance
Equi-Mor security cash flows
Paideia Note - Interest
Paideia Note - principal
Equi-Mor Ending Balance
Cash transferred/dividend toUWBI from E-mor
Total Cash from Non-Bank Subs:
TOTAL CASH AVAILABLE TO UWBI
24,355.896 24.231.722
estimate estimate
First Quarter Second Quarter
2012 2012
500,000 400,000
2,500,000 2.500,000
5.605
12,595
1,240,185 2,065,985
4.258,385 4,965.985
906,097 596.097
1,900,417 3,165.844
76,045 76,045
1,500,000 1,500,000
4,382,559 5,337,986
24,231,722 23,859,721
4,351,346 4,431,770
512,384 441,436
22,440 22,362
45,599 45,677
4,931,770 4,941,245
(500.000) (400,000)
4,431,770 4,541.245
23,859,721 24,113,271
estimate estimate
Third Quarter Fourth Quarter
2012 2012 Total 2012
350,000 350.000 1,600,000
2.500.000 2,500.000 10.000,000
26,735 3,390 35,730
12,595
847,244 1,078,516 5,231,931
3,723,980 3,931,906 16,880.256
596,097 906,097 3.004,389
1,298.288 1,652.680 8,017,229
76,045 76.045 304,179
1,500,000 1,750,000 6,250,000
3,470,430 4,384,822 17,575,797
24,113,271 23,660,355 23,660,355
4,541,245 4,632,670 4,351,346
373,386 306,176 1,633.382
22,362 22,362 89,526
45,677 45
1
677 182.631
4,982,670 5,006,886 6,256,886
(350,000) (350.000) ~ 1 ,600,000)
4,632,670 4,656,886 4,656,886
N
ex>
.c:.
VI
--
, '" .. '
~ J .
UNITED
WESTERN
BANCORP
UWBK 2012 Cash Flow Projections
$65 million Capital Raise
2012 Cash Flow Projection
Opening .Cash Balance
2012 Sources:
Dividends from Bank
Dividends from other subsidiaries
Tax payments from Subsidiaries
Securities exchanged for Equity Trust Note - cash flows
Subsidiary payments - net AlP .AlR
Other Sources
Total Sources
2012 Uses:
Payroll related cash activity
AlP for subsidiaries and holding company - cash expenses
Interest payments on Sub Debt
Interest payments on LOC
Tax payments to IRS
Tax payments to Subsidiaries
Repayments on LOC
Total Uses
Total Cash Balance
Cash Source from Non-Bank Subs:
. Equi-Mor Beginning Balance
Equi-Mor security cash flows
Paidela Note - Interest
Paideia Note - principal
Equi-Mor Ending Balance
Cash transferred/dividend to UWBI from E-mor
Funds from sale of Matrix Funding lots
Refinancing of Debt/Call of Trust Preferred
Total Cash from Non-Bank Subs:
TOTAL CASH AVAILABLE TO UWBI
2,158,634 396,932
estimate estimate
First Quarter Second Quarter
2012 2012
1,827,000 1,923,000
1,400,000 1,750,000
1,000,000 1,000,000
12.595
1.240.185 2,065.985
5,479,780 6.738,985
906,097 596.097
1.900,417 3.165.844
76.045 76.045
242.862 236.294
500.000 500,000
500,000 500.000
4.125,421 5.074.280
396.932 2.061.637
2.101.346 1,281.770
512,384 441.436
22.440 22,362
45
1
599 45
1
677
2.681.770 1,791.245
(1,400.000) (1.750.000)
1,281.770 41.245
1,678,702
2,061,637 3,248,929
estimate estimate
Third Quarter Fourth Quarter
2012 2012 Total 2012
2,140,000 2,269,000 8,159,000
300,000 300,000 3,750,000
1.200.000 1.300.000 4.500,000
12,595
847.244 1,078,516 5.231,931
4,487.244 4,947.516 21,653.526
596.097 906,097 3.004,389
1.298.288 1.652.680 8.017.229
76,045 76,045 304.179
229.523 220,154 928,833
600.000 650.000 2.250,000
500.000 500,000 2,000.000
3.299.953 4.004.976 16.504.630
3.248.929 4.191,468 4,191,468
41.245 182.670 2.101.346
373,386 306.176 1.633,382
22.362 22.362 89.526
45
1
677 45
1
677 182
1
631
482,670 556.886 4.006.886
(300,000) (300.000) (3.750.000)
182.670 256,886 256.886
.. 2846
TabC
Exhibit 94 H
2847
Office of Thrift Supervision
Department of the Treasury
Pacific Plaza, 2001 Junipero Serra Boulevard, Suite 650, Daly City, CA 94014-1976
P.O. Box 7165, San Francisco, CA 94120-7165 Telephone: (650) 746-7000 Fa.x: (650) 746-7001
August 6, 2010
Michael 1. Blayney, Esq.
Hunton & Williams LLP
Fountain Place
1445 Ross Avenue, Suite 3700
Dallas, TX 75202-2799
Dear Mr. Blayney:
OTS No. 06679
NATS No. R4-2010-0228
West Region
This is in regard to the Notice you filed on behalf of United Western Bank, dated July 27, 2010,
and received in om Office with copies and filing fee on July 30, 201 0, to conduct a new activity
through f:Ul operating subsidiary pursuant to 12 C.F.R. 559.11. 12 C.F.R. 559.11 also
provides that if the OTS detennines that the Notice presents supervisory concerns, it may require
that the proposal be processed under the' standard Application treatment. Based upon om
preliminary review of the proposed transaction in light of the Bd's adverse condition, this is to
advise you that we have supervisory concerns and will process the submitted Notice as a
standard Application subject to the processing procedures at Part 516, Subparts A and E.
As the proposal will now be processed as an Application, the applicable filing fee is $5,000,
pursuant to the Application Fee Schedule under TB 48-21. Inasmuch as $1,000 has already been
submitted with the Notice,an additional fee in the amount of $4,000 should be remitted as soon
as practical to our Regional headquarters in Dallas. Please be advised that the Application will
not be considered filed until the full fee has been received. Further, in accordance with
12 C.F.R. 516.210, we will provide you with om comments and requests for additional
inform.ation within 30. days of the date offiling.
If you have any questions, please feel free to contact me at 650-746-7029.
Sincerely,
~
Bowman W. Lee
Applications Analyst
cc: Tom Trujillo, FDIC-Dallas
2848
Michael J. Blayney, Esq.
August 6, 2010
Page 2
bce: N. J. Dyer
K. B. Swanson
S.1. Harris
J. A. Hendriksen
C.T.Coon
J. Miller
2849
TabC
Exhibit 94 I
2850
HUNTON&
WILLIAMS
.... _ HUNTON & WILLIAMS LLP
i' ,!'.:-:.,',-;-'"'''' '.' FOUNTAIN PLACE
it r'. f : .. :;;; /':;'.: i:';:-' 1445 ROSS AVENUE
';'i I ,1 SUITE 3700
i i ' ... ; ,; ". . :: .. ::.;:.t r ':/ DALLAS. TEXAS 75202-2799
i.;: r i \)
U' ; Ii AU::':/: TEL 214 9793000
:IJ i..,; G 10 2010 "r;.'j FAX 214.740.7108
:i; ", i MICHAEL J. BLAYNEY
if '.; . ' . '. _' t DIRECT DIAL: 214-468-3307
1............. , ...... ''',' '.\1 EMAIL: mblayney@huntQn.com
! '" "'; ".';' f
August 10,2010
Via Hand Deliverv
Philip A. Gerbick
Regional Director
Office of Thrift Supervision
Dallas Regional Office
225 E. John Carpenter Freeway, #500
Irving, Texas 75062-2326
.. ,,' . FILENO: 76676.1

AUG 10 2010
REGIONAL DIRECTOR
OTS-WESTERN
Re: United Western Bank -- Notice Pursuant to 12 U.S.C. 1828(m), 12 C.F.R.
362.15 and 12 C.F.R. 559.11 for an acquisition and conduct of a new
activity in an operating subsidiary
Dear Mr. Gerbick:
On behalf of our client United Western Bank, Denver, Colorado, a federal savings bank
(the "Bank"), and in response to the letter from Bowman W. Lee addressed to me dated August
6,2010, I am enclosing a check in the amount of $4,000 to cover the additional filing fees for the
Application.
Please do not hesitate to contact me with any questions or concerns.
Enclosure
cc: Michael Stallings
Ted Abariotes
Allen McConnell (finn)
J r'
Mic el], Blayn1 f
ATLANTA AUSTIN BANGKOK BEIJING BRUSSELS CHARLOTTE DALLAS HOUSTON LONDON LOS ANGELES
McLEAN MIAMI NEW YORK NORFOLK RALEIGH RICHMOND SAN FRANCISCO SINGAPORE WASHINGTON
www.hunlon.com
76676.00000 1 EMF_US 32088843v I
2851
United Western Bank
Reference
AUGUST 2010
Vendor No: OTS200 August 9, 2010
Vendor Name: OFFICE OF THRIFT SUPERVISION Check No: 86826
Net Amount Paid j Invoice Date Gross Amount Discount Taken
08/09110 4,000.00 4,000.00
.... - -, ..
;r:-) s; ;;!-: \.:' i? ;;'\
,) r rjr'-'-- _ '. _____ .. _ .. __ _ , j
. I , ::: ; I!
, !'! ."
,I.".!/, ';!
t !I" AUG 10 10 ., . ,I
:":';
,
,'J "'i ,:"''/ t
:: '- , '
I i.j'"; . ;', .. ' oJ
L ... . .:.'
Totals: 4.000.00 4,000.00
r .... 1
I . .., ...... .'.
N!
col

I
I
I
I
'.' Western .. "'.'.
700 11th Street. P.O. QOx 1320;;'
Denver. CO 80202
.;.
:::,"
I Pay
FOUR THOUSAND AND 0/100 -*
I
I
To}he OFFICEOFT,HRIFT SUPERVISION
Order Or: PO BOX 7165

'.'
.;0..... ,
i
' .. p.
Check No: 86826
Check Date: August 9, 2010
Amount: ..... 4.000.00 ....
_ p,;..:.CAs.t-
I SAN FRANCISCO, CA 94104-4533
, Your SJgnalUre Here
" illl:'i,a.'h\

United Western Bank
Vendor No: OTS200 July 29, 2010
Vendor Name: OFFICE OF THRIFT SUPERVISION
Reference
-jJ.nmiM Data Gross. A_ ..... AI Discount Takan
2010
07/29/10 1.000.00
., .
...... 'of
Totals: 1.000.00
. ..
Check No: 86736
Net Amount Paid
...... .
1,000.00 I
'.' .....
.. ',\j; .. > . ... ..,.
.. . ... / ...
'" . /-,' .. :., ",' ..0
. ':'::'":,,
Pay. .
: :,' "':'
___ __ rm_' .' II' m' 1IIi' ' ___ ' IiI __ l!ldli!.'Ii:firil!iilll.lijim].Ii\1Ii1""IIi'IIi!l! Iril f4I1iwm_ il*IiI'ImM1li il ___ d
2853
TabC
Exhibit 94 J
2854
Office of Thrift Supervision
Department of the Treasury Western Region
Pacific Plaza, 2001 Junipero Serra Boulevard. Suite 650, Daly City, CA 94014-3897 Daly City Area Office
P.O. Box 7165, San Francisco. CA 94120-7165 Telephone: (650) 746-7000 Fa.x: (650) 746-7001
September 9, 2010
Michael J. Blayney, Esq.
Hunton & Williams LLP
Fountain Place
1445 Ross Avenue, Suite 3700
Dallas, TX 75202-2799
Dear Mr. Blayney:
OTS No. 06679
NATS No. R4-2010-0228
This is concerning the notice you submitted on behalf of United Western Bank ("Bank") in our
Office on July 27, 2010, to advise ofitsintent to: (1) acquire Legent Clearing, LLC ("Legent");
and (2) conduct new activities through an operating subsidiary. Due to supervisory concerns,
pursuant to 12 C.F.R. 559.11, we notified you on August 6,2010, that the submission will be
processed as a standard Application. While the Application was fonnally filed on August 10,
2010, before we can consider it complete we askthat you respond to the following comments:
1. Please be advised that the Application cannot be deemed complete until the Bank has
received a final opinion or ruling from the FDIC as to whether the deposits that will be
placed through or made available from Legent would be considered brokered deposits under
12 C.P.R. 337.6, and a copy of which must be provided to this Office.
2. It is not clear from the Application as to how the operating subsidiary will be created or
formed. Will Legent be acquired and folded into a newly-created or an existing operating
subsidiary of the Bank? Will Legent itself, upon acquisition, become a new operating
subsidiary of the Bank? Please confirm explicitly.
3. Provide the corporate name and address of the subject operating subsidiary, as well as the
date and state of incorporation.
4. Provide a copy of the (proposed) articles of incorporation and bylaws of the operating
subsidiary.
5. State the amount of the Bank's existing or proposed direct investment in the operating
subsidiary.
2855
Michael J. Blayney, Esq. - United Western Bank.
September 9, 20.10
Page 2
6. Discuss how the operating subsidiary is permitted to engage in the proposed activity pursuant
to applicable state law, if any.
7. Briefly describe all other or regulatory approvals, consents, or notifications
that are required to consummate all transactions proposed in the Purchase Agreement.
8. Discuss how the Bank and the operating subsidiary will maintain separate corporate
existence, in accordance with 12 C.F.R. 559.10. Will the Bank. and the operating
subsidiary share any office space, have any "dual employees", e:qgage in other transactions
with one another, andwill there be a resource/service sharing or allocation agreement?
9. Describe the Bank's policy & practice with regard to any anticipated involvement in the .
proposed new operating subsidiary activity by any director, executive officer, or material
shareholder (or related interest thereof) of the Bank or its parent company.
10. On page 7 of the Application, it is stated that Mr. Guy Gibson (indirectly) acquired Legent
from Mutual of Omaha in June 2002; however, on page 9, it is stated that Mr. Gibson
founded Legent in 2002 .. Please clarify this discrepancy.
11. We understand Mr. Gibson indirectly owned Legent before selling his interest to the Legent
Group LLC andlor Mr. Henry C. Duques. What was the price that Legent was sold for?
12. With respect to Mr. Gibson, please describe explicitly, as of the date of Application filing, as
to the nature of any financial interest, association, affiliatio1l, or on-going business dealing
with Legent, the Legent Group LLC, or Mr. Duques.
13. Among the transactions contemplated in the Purchase Agreement, the Bank will advance
some $18 million to Legent so that Legent can retire existing debt. Please describe the terms
of such proposed credit advance by the Bank.
14. PurChase Agreement Section 3.13 - Please provide a copy of Schedule 3.13 regarding
discussion of pending and threatened litigation against Legent.
15. Purchase Agreement Section 3.26 - Please provide a copy of Schedule 3.26(a) regarding
discussion of transactions with affiliates involving Legent.
16. Please describe the intent and purpose of the Registration Rights Agreement, as well as the
anticipated timi:qg of registration activity in relation to the other transactions contemplated in
the Purchase Agreement.
2856
I .
Michael J. Blayney, Esq. - United Western Bank.
September 9, 2010
Page 3
17. Provide a complete copy of "the acquisition recommendation memorandum contemplating
the downside scenario" that was referenced in the minutes of the Bank's 06/03/10 Special
Board of Directors and Special Committee Meeting (Exhibit D).
18. Provide a copy of the"KBW Fairness Opinion" referenced in the meeting minutes; this
document will be afforded confidential treatment by the OTS.
19. It appears that the financial projections in the Business Plan under Exhibit F focuses on
Legent itself: while the financial projections in the Business Plan toward the end of Exhibit G
focuses on the Bank itself. Please provide financial projections (including balance sheet,
income statement, and cash flow statement) for the Bank on a pro forma basis through 2013.
assuming the base scenario of a $125 million capital raise, on a consolidating basis with the
operations of the Bank and Legent broken out separately and then fully consolidated.
20. Discuss whether the Bank would consider the acquisition of Legent if not for the issue of
brokered deposits. '
21. Discuss why the sellers (Legent Group LLC and Henry C. Duques) wish to sell Legent to the
Bank shortly after acquiring it.
22. Provide a discussion/comparison of Legent's recent operating performance with that of its
competitors.
23. Describe the quality of Legent's margin loan portfolio: What is the delinquency status/rate?
What has been the amount of charge-offs over the recent years? Why are no loan loss
provisions shown in the Business Plan for Legent?
24. Upon acquisition by the Bank. would Legent continue its policy of investment in
correspondent clients? If so, describe the form of such investment.
25. Explain why TradeKing is terminating its correspondent client relationship with Legent.
26. Assuming Legent does not add new clients, provide a projection of Legent's profitability
over the next three years following TradeKing's departure. Will Legent recognize a loss on
its investment in TradeKing?
27. Please provide us with a copy of any comment letter issued by the FDIC iII, connection with
the Application, as well as a copy of imy supplemental information filed with the FDIC.
2857
Michael J. Blayney, Esq. - United Western Bank
September 9, 2010
Page 4
Please be advised that, pursuant to 12 C.F.R. 516.220(a), should you fail to respond fully to the
above within 30 days of the date of this letter, we may deem your Application withdraWn or
consider your non-response to be ground for an issuance of disapproval or objection. If you have
any questions, please contact me at 650-746-7029.
~ y ,
Bowman W. Lee
Applications AnalY,St
cc: ~ Tom Trujillo, FDIC-Dallas
2858
TabC
Exhibit 94 K,
See TabC, Exhibit 30
2859
TabC
Exhibit 94 L
2860
Holding Company Docket Print
Systems Tools Forums Links OTSWeb
Holding Company Doclwt Print
Office of Thrift Supervision
FinanCIal Reporting System
Name: Holding Company Docket Print
Quarter of: September 2010
Location: Denver, CO
OTS Region:
Run Date: January 17, 2011, 1 :08 PM
Data: Regulatory ($Thousands)
TFR Edit Status: U;:n ;d( .,;., TFR Reported Data Date: December 8, 2010
rFR edit Sta.tus Date: December 9, 2010
j(**"'''' SENSITIVE
.. ..... ""' __ "",,,,,, -'-\11_ .. " .._ ........... , ...... _ ............. __ ................ HC"RePQ;t Filer
Docket: H")' structure: fen Ducket:
Name.: \I;f! ;';t(':r I Name: United Western sank
Lotation: Denver, CO ! Location: Denver, CO
OTS ({eglon: H'J."c.' OTS Region: :,'./\/
IIC Edit Status: TFR Edit Status: '.:,;'.i"",t;
He Edit Status Date: Novembe, lB, 2010
HC Reported Data Date, November 16, 2010
I
TFR Edit Status Date: December 9, 2010
TFR Reported Data Date: December B, 2010
Description
Holding Co. fiscal Year End
Stock Exchange Ticker Symbol
SEC file Number
Website Address (76 characters maximum)
http://www.uwbancorp.com
PARENTONLV
Total Assets
Total Liabilities
Equity:
Perpetual Preferred Stock:
Cumulative
Noncumulative
Common Stock:
Par Value
paid In Excess of Par
Accumulated Other Comprehensive Income:
Unrealized Gains (LOSSes) on Accum Gains (LOSSes) on Certain Securities
Gains (Losses) on Cash Aow Hedges
Other
Retained Earnings
Other Components of Equity
Total Equity
Total liabilities and Equity
Net Income (Loss) Attributable to:
Holding Company
l),vldends Declared Attributable to:
Holding Company
Incluoed in Total Assets:
Cash, DepOSits, and Investment Securities
Receivable from Subsidiaries:
Savings Association
Other Subsidiaries
Investment In Subsidiaries:
Savings ASSOCiation
Other Subsidiaries
Intangible Assets:
Mortgage ServiCing Assets
Nonmortgage Servicing Assets and Other
Deferred Policy Acquisition Costs
Included In Total Liabilities (excluding DepOSits):
Payable to Subsidiaries:
Line Item
HCllO
HC125
HC130
liC140
HCllO
He220
HC221
HC222
HC223
HC224
HC22S
HC226
HC227
HC228
HC229
HC240
HC20
HC250
HC575
HOOl
HCllO
HC320
HellO
HC340
HC3S0
H060
HC370
Page 1 of3
September
2010 Value
December
UWBK
21231
$ 173,597
$ 79,118
$0
$0
$3
$ 10B,073
$-
$0
$0
$- 9,410
$0
$ 94,479
$ 173,597
$- 23,304
$0
$ 6,251
$ 321
$ 2,415
$ 140,026
$ 17,753
$0
$ 21
$0
http://otsnetO 1/1712011
Holding Company Docket Print
savings AssociatIOn SubsIdiaries:
Transactional
Debt
Other Subsldlarles:
Transactional
Debt
Trust Preferred IrIstruments
Other Debt Milwrlng In 12 Mos or less
Other Debt Maturing In More Than 12 Mos
Reflected In Net Income:
Interest Income
Dividends:
From Savings Association Subsidiaries
From Other Subsidiaries
Tolallncome
Interest Expense:
Trust Preferred Instruments
All Other Debt
Total Expenses
Total Income Taxes
Net Cash Flow from Operations Attributable to Holding Company
, Year-toDate:
YTO - Net Income (LOSS) Attrlbutilble to Holding Company
YTO DIvidend Income From Savings As50datlon Subsidiaries
YTO - Dividend Income From Otller Subsidiaries
YTD - Interest Expense: Trust Preferred Instruments
YTO - Interest Expense: All Otller Debl
YTD - Net Cash Flow From Operations Attributable 10 Holding Company
CONSOLIDATED
Total Assets
Total Uablllties
Equity:
Perpetual Preferred Stock:
Cumulative
NoncumulatIVe
Common Stock:
Par Value
Paid In Excess Of Par
Accumulated Other Comprehensive Income:
unrealIZed GainS (Losses) on Meum GaIns (Losses) on Certain Securities
Gains (LOsses) on Cash Flow Hedges
Other
Retained Earnings
Other Components of Equity
,Total Holding Company Equity
Noncontrolling Interests In Consolidated SubsidIaries
Total Equity
Total liabilities and Equity
Net Income (Loss) Attributable to:
Holding Company and Noncontrolllng Interests
Holding Company
Dividends Dedared Attributable to:
Holding Company
Inouded In Total Assets:
Cash, DepOSits, and Investment Securities
Intangible Assets:
Mortgage Servldng Assets
Nonmortgage Servldng Assets and Ollter
Deferred Policy ACquisition Costs
Included In Total Uabilities (Exduding DepOSitS):
Trust Preferred Instruments
Oiller Debt Maturing In 12 Mos or less
Otlter Debt Maturing In More Than 12 Mas
Ret1ected In Net Income:
Interest Income
Total Income
Interest Expense:
Trust Preferred Instruments
All Other Debt
Total Expenses
Total Income Taxes
Net Cash flow from Operations Attributable to Holding Company
Page 2 of3
HC410 $0
HC420 $0
HC430 $0
HC440 $0
HC445 $ 30,442
HC450
* 16,250
HC460 $10,000
HCS05 $ 99
HCS2S $0
HCS35 $0
HCS09 $103
HC545 $460
HCS55 $ 390
HCS70 $ 24,088
HCS71 $- 681
HCS65 $- 2,883
Y_HC250 $- 67,164
Y_HC525 $0
Y_HC535 $0
Y_HC545 $1,459
Y_HC555 $ 1,169
Y_HC565 $-7,021
HC600 $ 2,084,611
HC610 $1,990,127
Hai21 $0
HC622 $0
HC623 $3
HC624 $108,073
Hail5 $- 4,187
HC626 $0
HC627 $0
Hai28 $- 9,410
Hai29 $0
HaiO $ 94,479
HC620 $5
HC630 $ 94.484
HOD $ 2,084,611
HCG35 $- 23,304
HC64D $- 23,304
H075 $0
HC601 $ 653,793
HC6S0 $ 5,844
Hai55 $ 746
HaiGD $0
Hai70 $ 30,442
HC680 $ 24,236
HC690 $ 265,516
HODS $ 21,165
HOD9 $ 20,119
HOIO $ 460
H020 $ 2,351
H070 $ 43,844
HC771 $- 421
H030 $ 3,706

Holding Company Docket Print
Year-to-Date:
YTD - Net Income (LOSS) Attributable to HC &. Noncontrolllng Interests
YTO - Net Income (Loss) Attributable to Holding Company
ITO - Interest Expense: Trust Preferred Instruments
ITO - Interest Expense: All Other Debt
ITO - Net Cash Flow From Operations Attributable to Holding Company
SUPPLEMENTAL QUESTIONS
Any significant subs of the HC formed, sold, or dissolved during tile qlr7
HClany sub a broker or dealer registered under the SEC Act of 19347
HClany sub an Investment advisor regulated by ttle SEC or any State?
HClany sub an Investment company reglsterd under the Invest Co Act of 1940?
HClany sub an Insurance comp sub! to supervision by a State Ins l\e!Julator?
HClany sub subject to regulation by the CFTC?
HClany affiliates conduct oper outside U.S. thru foreign brench/subsldlary?
Has the HC appointed any new senior exec officers/directors during the qtr?
HClany sub entered Into a new pledge or changed the terms of capital stock'?
HC/any sub changed any security that would negatively Impact Investors?
IiClany sub defaulted In the payment of prln, Int, Installment during qtr?
Change In the holding company's Independent auditors during the quarter?
Change In the holding company's fiscal year end during the quarter?
HC/any GAAP-consolldated subs control other U.S. depository Institutions?
If located In the US or Its territorieS, provide the Forc certificate no.
If located In the US or Its terrltorle" provide the FDIC certificate nO.#2
If located In the US or Its territories, provide the FDIC certificate no.#3
If located in the US or Its territories, provide the FDIC certificate no.#4
If located In the US or Its territories, provide the FDIC certificate no.1t5
Page 3 of3
V_HC635 $- 67,164
V_HC640 $- 67,164
Y_HC710 $ 1,4S9
Y_HC720 $ 6,983
Y_HC730 $- 16,945
HC81D No
HC81S Yes
HCa20 No
HCa2S No
HC830 Yes
HC83S No
HC840 No
HC845 No
HC8SQ No
HCBS5 No
HC860 Yes
HC865 No
HC870 No
HC875 No
HC876 N/A
HC877 N/A
HC878 H/A
HC879
1>1/"
HC880 Ii/A

,
TabC
Exhibit 94 M
2864
hUNTON&
WILLIAMS
October 8,2010
Philip A. Gerbick
Regional Director
Office of Thrift Supervision
Dallas Regional Office
225 E. John Carpenter Freeway, #500
Irving, Texas 75062-2326
OCT
) 2 2010
. . . ~ .. ~ : ."
HUNTON & WILLIAMS LLP
FOUNTAIN PLACE
1445 ROSS AVENUE
SUITE 3700
DALLAS, TEXAS 75202-2799
TEL 2149793000
FAX 2147407108
MICHAEL J. BLAYNEY
DIRECT DIAL: 214-468-3307
EMAIL: mblayney@hunton.com
FILE NO: 76676.1
",f
Re: United Western Bank -- Notice Pursuant to 12 U.S.C. 1828(m), 12 C.F.R.
362.15 and 12 C.F.R. 559.11 for an acquisition and conduct of a new
activity in an operating subsidiary ("Notice")
Dear Mr. Gerbick:
Below are our client's responses to the questions and comments set forth in the letter of
Bowman W. Lee dated September 9, 2010 (terms with their initial letter capitalized but not
defined in this letter have the meanings given them in the Notice submitted previously). Those
questions and comments are reproduced below in bold and italicized print:
1. Please be advised that the Application cannot be deemed complete until the Bank has
received a final opinion or ruling from the FDIC as to whether the deposits that will be
placed through or made available from Legent would be considered brokered deposits
under 12 C.F.R. 337.6, and a copy ofwhiclt must be provided to this Office.
Based on our conservations and discussions with Regional Director Gerbick, Deputy
Regional Director Scott, Assistant Director Dyer and other OTS representatives during
our September 16, 2010 meeting in Dallas, Texas, we believe and it is our understanding
that the OTS will continue to proceed with a full review ofthe Bank's application, even
as the Bank continues to work and provide information to the FDIC regarding the FDIC's
preliminary determination concerning certain ofthe Bank's deposits as "brokered
deposits."
We note, however, that a final FDIC opinion or ruling ort the brokered deposit issue will
likely not be received before the Legent Purchase Agreement drop dead date deadline of
November 30,2010. As per a letter dated September 29,2010 from Sandra Thompson,
Director of the FDIC's Division of Supervision and Consumer Protection, the Bank has a
ATLANTA AUSTIN BANGKOK BEIJING BRUSSELS CHARLOTTE DALLAS HOUSTON LONDON LOS ANGELES
McLEAN MIAMI NEW YORK NORFOLK RALEIGH RICHMOND SAN FRANCISCO SINGAPORE WASHINGTON
www.hunton.com
2865
HUNTON&!
WIWAMS
October 8, 2010
Page 2
deadline of December 2, 2010 to file a review of the FDIC's supervisory determination.
This extended time frame was set because the FDIC Regional Office has only issued a
preliminary determination dated May 24, 2010 and continues to review information
before issuing an final determination. While the FDIC has not affirmatively acted to
finalize their preliminary determination, FDIC procedures afford an adversely effected
institution a right to appeal a final determination - a filing due on or before December 2,
2010, which assumes the FDIC has issued a final determination by then, Moreover, the
proposed recapitalization of the Bank could negate any need for the FDIC to render a
final determination or ruling.
Accordingly, we believe that OTS's unwillingness to deem the pending application
complete based upon an FDIC ruling that may be months away or may never be issued is
highly inappropriate. We expect and understand that the review process of the pending
application to acquire Legent Clearing will continue and expect that final OTS and FDIC
action on the merits of the application will be issued to facilitate the parties meeting the
Legent Purchase Agreement drop dead date deadline of November 30,2010.
We will continue to work diligently to answer any and all inquires from the OTS and the
FDIC and will provide copies to each respective agency of all correspondence and our
responses. We look forward to receiving each agencies' approval of this operating
subsidiary application as promptly as possible.
2. It is not clear from the Application as to how the operating subsidiary will be created or
formed. Will Legent be acquired andfolded into a newly-created or an existing
operating subsidiary of the Bank? Will Legent itself, upon acquisition, become a new
operating subsidiary of the Bank? Please confirm explicitly.
Pursuant to the terms of the Purchase Agreement, the Bank will acquire all the issued and
outstanding membership interests in Legent from Legent Group, LLC; therefore, upon
closing, Legent itself will become the operating subsidiary, and will be a direct wholly ...
owned subsidiary of the Bank.
3. Provide the corporate name and address of the subject operating subsidiary, as well as
the date and state of incorporation.
The corporate name and address of the operating subsidiary will be:
Legent Clearing, LLC
2866
HuNroN&
WIlliAMS
October 8, 2010
Page 3
9300 Underwood Avenue
Suite 400
Omaha, Nebraska 68114
Legent is a limited liability company and was organized under the laws of the State of
Delaware on January 22,2004.
4. Provide a copy of the (proposed) articles of incorporation and bylaws of the operating
subsidiary.
Copies of the Certificate of Formation and Operating Agreement of Legent, received
from Legent, are included as Exhibit A.
5. State the amount of the Bank's existing or proposed investment in the operating
subsidiary.
The Bank does not have any current direct investments in the proposed operating
subsidiary. The proposed investment by the Bank into Legent will be dependent on the
"Final Cash Purchase Price" (as defined in Section 2.3c(iii) of the Purchase Agreement),
the outstanding balance of Legent subordinated indebtedness at closing and the amount of
excess capital that the Bank determines is prudent for Legent net capital requirements.
On a pro-forma basis assuming that the acquisition had closed on September 30,2010,
the Bank's investment in Legent, as disclosed in the Business Plan submitted with the
Notice, will be approximately $42.2 million, consisting of $15.7 million purchase price, a
$16.5 million payoff of subordinated indebtedness and $10 million of additional capital
that the Bank provides to its operating subsidiary for net capital requirements ..
6. Discuss how the operating subsidiary is permitted to engage in the proposed activity
pursuant to applicable state law, if any.
Legent has all registrations and licenses required to conduct its present business. A list of
all registrations and licenses possessed by Legent is included on Exhibit B.
7. Briefly describe all other governmental or regulatory approvals, consents, or
notifications that are required to consummate all transactions proposed in the
Purchase Agreement.
Pursuant to Section 3.4 of the Purchase Agreement, the necessary governmental or
regulatory approvals, consents and notifications are provided on Schedule 3.4 to the
2867
HUNTON&
WILLIAMs
October 8,2010
Page4
Purchase Agreement. FINRA must approve the purchase ofLegent by the Ban1e The
SEC must approve repayment of the subordinated indebtedness and related transfer of
collateral contemplated under Section 6.12 of the Purchase Agreement. Legent is
required to notify all fifty states, the District of Columbia; Puerto Rico and the entities
listed in Section 3 of Schedule 3.4 of the Purchase Agreement.
8. Discuss how the Bank and the operating subsidiary will maintain separate corporate
existence, in accordance with 12 C.F.R. 559.10. Will the Bank and the operating
subsidiary share any office space, have any "dual employees", engage in other
transactions with one another, and will there be a resource/service sharing or
allocation agreement?
Both the Bank and the operating subsidiary will be operated in a manner that
demonstrates to the public that each maintains a separate corporate existence. To that
end, each such entity will operate in accordance with 12 C.F.R. 559.10 so that:
(1) Their respective business transactions, accounts, and records are not intermingled;
(2) Each entity observes the fonnalities of their separate corporate procedures;
(3) Each is adequately financed as a separate unit in light ofnonnal obligations
reasonably foreseeable in a business of its size and character;
(4) Each is held out to the public as a separate enterprise; and
(5) Unless the Bank has guaranteed a loan to the operating subsidiary, all borrowings by
the operating subsidiary indicate that the Bank is not liable.
Initially, it is not contemplated that the Bank and Legent will share any office space nor
have any "dual employees." It is contemplated that the Bank will enter into transactions
with Legent. In particular, it is contemplated that the Bank will become the settlement
bank for Legent, replacing Deutsche Bank and Trust Company Americas as Legent's
current settlement bank. As Legent's settlement bank, the Bank shall maintain deposits
from Legent's introducing broker-dealers and correspondents ("Customers") at the Bank
and at other banks participating with the Bank in a program whereby the Bank and other
banks agree to maintain Customer deposits so that such deposits shall be insured by the
FDIC up to the limits available under the program created by Legent and the Bank.
2868
HuNToN&:
WIlliAMS
October 8, 2010
Page 5
It is contemplated that there wUl be a resource/service sharing or allocation agreement
between the Bank: and Legent to the extent there is sharing of resources or services.
9. Describe the Bank's policy and practice with regard to any anticipated involvement in
the proposed new operating subsidiary activity by any director, executive officer, or
material shareholder (or related interest thereof) of the Bank or its parent company.
Upon the closing of the Legent acquisition, the executive management of the Bank: will
necessarily take an indirect oversight role in the overall operations of Legent. Prior to the
closing of the Legent acquisition, the Bank: will prepare certain policies and procedures
governing any anticipated involvement in Legent by any director or executive officer of
the Bank or its" parent company. It is not contemplated that there will be any anticipated
involvement in Legent by any material shareholder of the parent company.
10. On page 7 o/the Application, it is stated that Mr. Guy Gibson (indirectly) acquired
Legent from Mutual o/Omaha in June 2002; however, 'on page 9, it is stated that Mr.
Gibson founded Legent in 2002. Please clarify this discrepancy.
In 2002, Mr. Gibson f o u n d e ~ Legent Holdings, Inc. and formed Legent Clearing, LLC to
acquire the operations ofKP Clearing from Mutual of Omaha. Mr. Gibson was not the
"founder" ofKP Clearing operations, the Kirkpatrick Pettis clearing division of Mutual
of Omaha, and the predecessor name of the business which is currently performed by
Legent Clearing. To clarify, the statement on page 7 of the Application should state that
"in June2002, Legent Holdings acquired the Kirkpatrick Pettis clearing operations
(predecessor clearing operations ofLegent) from Mutual of Omaha's wholly-owned
FINRA member firm." .
11. We understand Mr. Gibson indirectly owned Legent be/ore selling his interest to the
Legent Group LLC and/or Mr. Henry C. Duques. What was the price that Legent was
sold/or?
On February 9,2005, Legent Holding, Inc. sold approximately 90% of its interest in
Legent to Legent Group for approximately $23.6 million. Mr. Gibson through Legent
Holdings, Inc. (now known as G2 Holding Corp.) retained the remaining interest.
Through subsequent direct investments by its majority owner into Legent Group, G2
Holding Corp.' s retained ownership was diluted to approximately 9.49%. On March 24,
2010, G2 Holding Corp. sold its entire interest in Legent Group to Mr. Duques for
$898,082.97.
2869
HUNTON&
WILLIAMS
October 8, 2010
Page 6
12. With respect to Mr. Gibson, please describe explicitly, as of the date of Application
filing, as to the nature of any financial interest, association, affiliation, or on-going
business dealing with Legent, the Legent Group LLC, or Mr. Duques.
Legent. With respect to Legent, Mr. Gibson has no financial interest in Legent. In
association with Chris Frankel, CEO of Legent, and other Legent personnel, Mr. Gibson
has participated from time to time in various conference calls and meetings with current
and prospective new correspondent customers to discuss the proposed transaction. Mr.
Gibson has represented United Western Bancorp, Inc. ("DWBK") and the Bank
incidental thereto. As of August 31, 2010, Mr. Gibson has a brokerage account at Legent
which was established when he formed the company in 2002. The account is number
6414-4556 and had a net portfolio value of$37,069.41 as of August 31, 2010. Mr.
Gibson's on-going business dealing with Legent is limited to his activities associated
with his existing Legent brokerage account.
Legent Group. With respect to Legent Group, Mr. Gibson has no financial interest in
Legent Group. Mr. Gibson's association with Legent Group is limited to certain
meetings with current and prospective new Legent correspondent customers to discuss
the proposed acquisition by the Bank ofthe operating subsidiary. Mr. Gibson has
represented UWBK and the Bank incidental thereto. Mr. Gibson has no affiliation with
Legent Group. Mr. Gibson has no on-going business dealings with Legent Group.
Mr. Dugues. With respect to Mr. Duques, Mr. Gibson has no fmancial interest with Mr.
Duques. Mr. Gibson associates with Mr. Duques on a frequent basis to discuss the
progress of the proposed Legent acquisition transaction and Mr. Duques, at the request of
Mr. Gibson, has provided counsel and assistance in the UWBK capital formation efforts.
Mr. Duques and Mr. Gibson both sit on the board of directors of Kane Reid Securities.
13. Among the transactions contemplated in the Purchase Agreement, the Bank will
advance some $18 million to Legent so that Legent can retire existing debt. Please
describe the terms of such proposed credit advance by the Bank.
The retirement of the subordinated debt owed to Legent Group by Legent Clearing will
occur simultaneous with the closing of the purchase. The Bank will own Legent at the
time that the subordinated debt owed to Legent Group is paid off. The Bank is not
2870
HUNTON&:
WILIlAMS
October 8, 2010
Page 7
extending credit. The Bank is using cash to payoff debt owed to Legent Group. There
are no tenns of credit.
14. Purchase Agreement Section 3.13 - Please provide a copy of Schedule 3.13 regarding
discussion of pending and threatened litigation against Legent.
A copy of Schedule 3.13 is included as Exhibit C.
15. Purchase Agreement Section 3.26 - Please provide a copy of Schedule 3.26(a)
regarding discussion of transactions with affiliates involving Legent.
A copy of Schedule 3.26(a) is included as Exhibit D.
16. Please describe the intent and purpose of the Registration Rights Agreement, as well as
the anticipated timing of registration activity in relation to the other transactions
contemplated in the Purchase Agreement.
The purpose of the Registration Rights Agreement is to provide for registration of the
shares ofUWBK stock to be received by Legent Group as partial consideration for the
acquisition, and therefore to provide for the free transferability of those shares under
applicable securities laws. The filing of a registration statement with regard to such
shares would take place within 60 days of the closing of the acquisition if on Fonn S-3,
otherwise at any time commencing on January 1, 2011 on the demand of the holders of a .
majority of the subject shares.
17. Provide a complete copy of "the acquisition recommendation memorandum
contemplating the downside scenario" that was referenced in the minutes of the
Bank's 06103110 Special Board of Directors and Special Committee Meeting (Exhibit
D).
A copy of the complete Memorandum to Independent Directors Recommending Legent
Clearing Acquisition, dated May 21,2010, which includes the "downside scenario" is
included as Exhibit E.
18. Provide a copy of the "KBW Fairness Opinion" referenced in the meeting minutes;
this document will be afforded confidential treatment by the OTS.
2871
HUNTON&
WILLIAMS
October 8, 2010
Page 8
A copy of the "Confidential Fairness Opinion Materials - Prepared for the Independent
Committee of the Board of Directors of Ultra (United Western Bank)," dated June 3,
2010 is included as Exhibit F.
19. It appears that the financial projections in the Business Plan under Exhibit F focuses
on Legent itself, while the financial projections in the Business Plan toward the end of
Exhibit G focuses on the Bank itself. Please provide financial projections (including
balance sheet, income statement, and cash flow statement) for the Bank on a pro forma
basis through 2013, assuming the base scenario of a $125 million capital raise, !!.!!:..!!.
consolidating basis with the operations of the Bank and Legent broken out separately
and then fully consolidated.
The requested financial projections areinc1uded as Exhibit G.
20. Discuss whether the Bank would consider the acquisition of Legent ifnotfor the issue
of brokered deposits.
The Bank would absolutely consider the acquisition of Legent despite the brokered
deposit issue since the Bank does not consider the Legent deposits to be brokered (see the
Bank's reasoning on the brokered deposit issue set forth in Exhibit G to the Application).
The FDIC has not made a final detennination that the Legent deposits are brokered. The
Bank believes that Legent acts as an agent for its customers and its primary purpose is
providing securities clearing and settlement services for such customers, and thus Legent
squarely falls within the plain meaning of an exception to the definition of "deposit
broker" under 12 C.F.R. 337.6(a)(5)(ii) ("I. an agent or nominee whose primary purpose
is not the placement of funds to depository institutions.").
21. Discuss why the sellers (Legent Group LLC and Henry C. Duques) wish to sell Legent
to the Bank shortly after acquiring it. .
The Bank disagrees with the characterization in this question that the seller's investment
in Legent has been short in duration. Legent Group has owned Legent Clearing since
2005. The Bank does not presume to know Legent Group's or Mr. Duques' specific
motivations for selling Legent to the Bank, and does not believe it appropriate to
speculate as to their motivations.
22. Provide a discussion/comparison of Legel'lt's recent operating performance with that of
its competitors.
2872
HUNTON&
WILLIAMS
October 8, 2010
Page 9
Please see the information provided in response to question 18 above - "Confidential
Fairness Opinion Materials - Prepared for the Independent Committee ofthe Board of
Directors of Ultra (United Western Bank)," dated June 3, 2010 attached hereto as Exhibit
,E, concerning the operating perfonnance of competitors of Legent. In all cases, the
competitors of Legent are either wholly-owned subsidiaries or divisions of much larger
public financial institutions, or private companies and therefore not required to report
operating performance in the public domain. As such, financial information on such
competitors is not available.
23. Describe the quality of Legent's margin loan portfolio: What is the delinquency
status/rate? What has been the amount of charge-offs over the recent years? Why are
no loan loss provisions shown in the Business Plan for Legent?
The quality of Legent's margin loan portfolio is good. The portfolio currently has a 0%
delinquency rate. No loans are past due. Legent has had no charge-offs from its margin
loans in the last eight years. There is no loan loss provision for its margin lending
operations shown in the Legent business plan because historically Legent has been able
to demonstrate that there is little to no risk of loss in its margin lending portfolio.
24. Upon acquisition by the Bank, would Legent continue its policy of investment in
correspondent clients? If so, describe the form of such investment.
No, upon acquisition by the Bank Legent would not continue a policy of investment in
correspondent clients.
25. Explain why TradeKing is terminating its correspondent client relationship with
Legent.
TradeKing received a competing clearing proposal from Penson Worldwide and elected
to sign an agreement to convert its clearing business in the later part of 201 O. According
to TradeKing's Chairman and CEO, Don Montanaro, Jr., TradeKing was drawn to the
"flexibility and choices afforded by Penson's technology." TradeKing believed that
Penson has "really focused on online brokerage and, in particular, online options trading"
where TradeKing executes a third of its trades. In addition, the following statements
published in Securities Industry-News, dated February 9,2010, "Online Success
TradeKing Chooses Penson to Clear" is responsive to the question:
2873
HUNTON&
WIlliAMs
October 8,2010
Page 10
"Montanaro also pointed to Penson's expansion of its clearing operations outside the
US.-Canada, the UK. and most recently Australia--andinto financial markets such as
futures and currencies. He said expanding into Canada and offeringfutures trading are
the initiatives TradeKing is likeliest to consider pursuing after converting to the Penson
platform, anticipated in late second quarter.
More immediately, Montanaro said, Penson has expertise clearing complex multi-legged
options strategies and calculating key factors such as customers' buying power in as
close to real-time as possible.
Montanaro said Penson's Penson Connect service, which sits between the front-office the
trade processing engine, increases the efficiency of the interfaces connecting data
sources to TradeKing's front-end. "Penson, because of its focus on online customers, has
worked out data sets and APls to get all the data we need to populate our websites of
interest to active traders, " Montanaro said.
26. Assuming Legent does not add new clients, provide a projection of Legent's
profitability over the next three years following TradeKing's departure. Will Legent
recognize a loss on its investment in TradeKing?
A copy of the projection of Legent profitability assuming no new correspondent additions
and the departure of TradeKing is attached to this response as Exhibit H. Legent does not
own or hold an investment in TradeKing. Legent will not recognize a loss of investment
in TradeKing.
27. Please provide us with a copy of any comment letter issued by the FDIC in connection
with the Application, as well as a copy of any supplemental information filed with the
FDIC
The Bank has not yet received a comment letter from the FDIC in connection with the
Application. The Bank will provide copies of any comment letter received from the
FDIC, as well as copies of any supplemental information filed with the FDIC in
connection with the Application.
The Bank hereby requests confidential treatment for the information and materials
contained in this letter. The information and materials contained in this letter constitute
privileged and confidential commercial and financial information, proprietary in nature, that is
2874
HUNTON&
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October 8,2010
Page 11
not available to the public from any other source. Disclosure of this information to the public
would provide competitors and others with information about the financial and business
projections of the Bank and Legent Clearing. Such information has traditionally and consistently
been afforded confidential treatment. We request that if, notwithstanding the foregoing, the OTS
should determine preliminarily to make available to the public any of the information contained
in this letter, it will infonn us prior to any such release.
If you have any questions or comments or require additional information, please contact
the undersigned, Michael Stallings, Senior Vice President at (720) 932-4280 or Ted Abariotes,
General Counsel at (720) 932-4216. We appreciate your prompt attention to this matter.
Enclosures
cc: Bowman W. Lee, OTS
Kristie K. Elmquist, FDIC
Tom Trujillo, FDIC
Michael Stallings
Ted Abariotes
Allen McConnell (firm)
2875
TabC
Exhibit 94 M(a)
2876
EXHffiITA
Certificate of Formation and Operating Agreement
2877
tJJefaware
fJJie.1irst State
I, JII .. ncBr ". BULLOClr, SBCRIl!l'ARr or S!I'AD 0.. ra srAD or
D.IUJlWA.RB', DO.BJIRJf.Br C1IB.!'l'IR"r "LBGBN!' CLJIA.RING LLC" IS DULr 1I'OlUIBD
f1NDB.R rD LAJIS 0.. rD srAD or D.BLAIf.AR.II AND IS IN GOOD SrANDING
AND BAS A LBGJlL BKIS!'DCJI so .. AR .AS !I'D .RBCORDS 0 .. !l'BIS OJ7IC1I
SHorr, .AS 0.. rD !'l'BN!'B DAr 0 .. lIAr, A;, D. 2010.
AND I DO .BJIRJf.Br .nmr.aa amrIR"r !l'B.U' ra JllflfI1AL rADS BJlVJ:
BBBIf PAID !'O DArB.
3738745 8300
100483121
J"ou _Y ... .r::l.t'y tlU.. C'U'tiftc:ate on.l1J:ae
at: eozp. de.1alfU'e. !lD,,/autlwltr. afa!
2878
.JeIIiey W. Bullock. secretary of.State
AO!r.JD!Jntart!i;'I''ION: 7181394
DAD: 05-10-10
f})efaware
PAGB 1
'1Iie !First State
I, J'Bl7RBr JI. BULLOCK', SBc.R.I:rARr or srArB or rD SrA!l'1l or
DE.LAJIARE, DO BBRBBr CBRrIIT !'D A!'rACDD ARB !l'.R0'.!:. AND CO.RR1lcr
coeIES or ALL DOCf1JI1lN!l'S ON rILB or rrLBGBNr CLBARING LLC" AS
RECICIVEDAND rILED IN !'HIS OJTICB.
!'D FOLLOWING DOCf1II1lN'.rS HAVE BEEN CBR!'IrIBD:
CBR!'IrICArB or INCODORA!'ION, rILED !'D EUV1UI!'H DAr or
DEC1IJIBD, A. D. 2003, A!' 4: 09 0 'CLOCK l' .M.
C1lR!'IrICArB or DRGBR, FIUD !'HB !'DN!'IB!'H DAr OrJANUARr,
A.D. 2004, A!' 4:43 O'CLOClC P.M.
AND I DO BBRBBr FD'.R!'HBR CBR.!'IB'r !'HA!' !'HB BrRC!'IVB . DA!'B or
!'BB AJ'O.RJ:SAID CDrIrICA!'1l or HBRG1l.R IS !'D 'nIEN!l'r-rIRS!' DAr or
JANUARr, A.D. 2004, Ar 12:01 O'CLOCK A.M.
CBRrIFICArE or CONVllRSION, CHANGING I!'S NAD 1!'ROM rrLEGBN!'
HERGlCR COD. rr !'O rr LBGlCN!' CLEARING LLC", rIUD !'D !1.W1lN!'IE!'H DAr
or JANUARr, A.D. 2004, A'J! 5:26 O'CLOCK' P.M.
AND I DO DREBr FD'.R!'HBR CD'J!IB'r 'J!BA!' !'D BITBC'J!IVB DA!'E or
'J!BB AJ'O.RJ:SAID CBR'J!IrICA'J!E OF CONVllRSION IS !'D !'DN'J!r-rIRS!' DAr
or JANUARr, A.D. 2004,A'J! 12 :02 0 'CLOCK' A.M.
CBR'J!IrICA!'1l or FOlUIA'J!ION, rILED 'J!D 'J!JI1CN!1.'IB!'H DAr or
JANUARr, A.D. 2004, Ar 5:26 O'CLOCK' P.M.
3738745 8100S
100483121 DA!'E: 05-10-10
2879
f})efaware
rzfie, !first State
AND I DO .D.RB.BY J'URf'BB.R CBAf'IIT f'Of' r.rm Brncr:nnr DAD or
f'BB AJ"OUSAIDCBRf'IrICAf'BOr J"OJUI.I.!'ION IS f'B ftIIIN'J!r-rIRSf' DAY
or JANUARY, A. D. 2004, A!' 12: 02 0' CLOCK .11.11.
AND I DO DR.IrBr J'URf'BBR CBAf'IFr f'O!' f'BB AJ'OUSAID
CBltf'II'ICAf'BS ARB f'BB ONLY CBR!'IJ'ICAf'BS . ON .RBCO.RD. OJ' f'BB
AI'ORBSAID LIIIIf'BD LIJ18ILIf'r COJIlIANr, "LBGSN!' CT.ICA.RING
3738745 8100B
100483121
:rou _y f:IJ1. GDl.:f.D8
a1: corp. _laaze. gov/aut:tw.r.llbtal 2880
jeffiey W. Bullock, 5ecJetary of State
7981395
DAN: 05-10-10
,a..v,., VV"&.l. ",,"U.I I vn l'''UU"' "I. .................. '. I'" \'"1111 .... .... V ~
Secretary of state
D1v1111oa of Cozporat1mu
-Del1v.red 04:09 HI 12/11/2003
I'ILBD 04: 09 HI 12/11/2003
SRV 030797222. - 3738745 1!'IU
aR'I1ftCATB OI'INCORPORATION
0)1'
LEGENT MBllGER CORP.
ARTICLE I
NAME 01' CORPORATION
1be name of this CO!p01'aticm (the uCorporation") is:
Logoni Mcqer Corp.
ARTICLED
REGISTElIED OFFICE
The address of the ~ office ofth. Corporation in the State of DelaW'lle is
1209 Orange Street, in the City ofWilmm,ton. 19801 in New castle Countymd the name of its
registered agent at that adcInaa is The Corporation Trust Company.
AltTICLEm
PURPOSE
The parpoae of the Corporation is to eqage in any lawfi:al act or activity for
which corporations may be organized under the General Corporation Law of the State of
Delaware (the "Delaware Code").
ARTICLE IV
AUTRORIZltD CAPJT AI" STOCK
The CoIporatiOD shall be authorizecl to issue ODe c1aas of stookto be dcltianated
Common Stock; the total ftlD'llbei' of shln:la which the Corporation shall have authority to usue is
10.000. and each such share sball have a par value of SO. OJ.
ARnCLEV
BOARD POWBRREGARDING BYLAWS
ID fiIrthcnnce and not iD Unri1BdOD of the powen oontened by statute, the Board
~ f Directon is expressly authorized to make, repeal, att., 8IIleIld and resciDd the bylaws of the
Corporation. .
2881
. ......... .
ABTlCLI!VI
. ELECI10N 01' DIRECrOBS
Bleoti.oDs of directors need not be by written ballot UDleas the bylaws of 1hc
Corporation shall so provide.
,
AIlTiCLEVD
LIABILITY
A director of the CoIpntion-aha11 DOt be penoaaIly liable to the Corporatiao or its
stockholders for monetary dam ... for bnIdl of ti.duciaIy duty as a dinctor, except tbr liability
<a) for any breach of the director's duty of loyalty to the CoIplratioD 01' its stockholders, (b) for acts
or omissioas not :in sood faith or wbidl involve iotcntional m i ~ or a knowiDg violatioDOf --
law. (e) under Secti01'l 174 of the Delawam Code. or (d) for aD.)' traDlaction &om which the diIector
daived an improper peraonal balcfit. If the Delaware Code is amended to authorize corporate
action firibcr eJimirUins 01' 1imitins the peraonal liability of ctindors, thea the liability ot" a director
of the corporation sba1l be eUmiIIated or limited _to thetuUest CKtcIIt pamitted by the Delaware
Code, as so amended. Any npea1. or modification of this pmyision shall not adversa1y affect any
right or protection of a director of the cxxporation existing attha time of such repeal or modification.
ARTlCUVDI
CORPORATE POWER
The Corporati01l reserves the ript to IIID.IID.d, alter, <:luuap or repeal any provision
contained in tbill Certificate of Incorporation, in the III8IUUII' now or heRatlor pracribed by
statute, and all rights conferred on stockboldcn herein are granted subject to thisreservatiOIl.
ARTICLE IX
INCORPORATOR
The name aDd mailina acIdra oftJle incorporator of the Corporation is:
Hiedi M. Liesch
The Corporation Trust Company
Coxpcmdion Trust Cad:er
1209 Oranae Street
WiJminaton, DE 1980 I
(CoUDty of New Castle)
- 2882 2
4O" , ... _ - ... ." ..... .I'" ,." .... ,.. ''''''1'\ '" r'"
THE. UNDERSIGNED. beiDa the iDcozporator hereinbefore named, for the
purpose of fonning a corporation to do business both within and without the State of Delaware,
and in pursuance of the Delaware General Corporation Law, does make and file this Certificate.
Dated: December 11, 2003
lsi Hiedi M Liesch
InCOl'JX)rator
2883 3
FROM CO.RPORATI ON TRUST WI 1M. TEAM #2 (TUE) 1. 20' 04 17: 26/ST. 17 2
. Division or Cor,poratioDs
CERTDnCATEOFMERGER
of
LEGEM q.EAlUNG CORP.
(a Nebrub corporadoD)
bato
LEGENT MERGER COD.
(a Delaware eor,orattoD)
05:26 Ol/20/2004
FILED 04:43 Ol/20/2004
SRV 040040632 - 3738745 FILE
Pursuant to T.itle 8, Secti0ll2S2 of the Delaware General CoIporation Law, the
unde:tSigned,corporiation executed the following Certificate of Merger:
FIRST:, The of the survivilll oorponliion is Legent Merger Corp., a
Delaware corporation, and name of the corporation being merged into this surviving corporation
is Lesem Clearing Corp., a Nebraska corpora1ion.
SECOND: The Plan and Agreement of Merger, attached hereto as Exhibit A, bas
been approved, adopted. certified. executed and acknowleciSed by each oftbe constituent
corporations pursuant to Title 8. Section 152 of the General Corporation Law of the State of
Delaware.
1HIRD: The DIlDO of the survivina COlpOration is Legem Mercer Corp., a
Delaware corporation.
FOURTH: The Certificate of IncoqlOt8tion of the survivina oorporation shall be ita
Certificate of Incorporation.
FIFTH: The authorized stoek and par value oftbe fomp C:O!pOratton is 10,000
shares of Common Stoek, par value of $0.01 per shate.
SIXTH: The Effective Time of the MergeJ" shall be 12:01 AM Eastem Standard
TIme on January 21, 2004.
SEVENTH The Plan and AgtCement ofMcrecr is an file at 9300 Underwood AVCIl\1e,
Suite 400, Nebraska 68114.
BlOHm: A copy of1he Plan and Agreement of Merger will be furnished by the
surviving corporation on request, without cost, to any stockholder of the coJlStituent
corporations.
2884
FROM CORPORATION TRUST WI 1Jl TEAM #2
(WE) 1. 20'04 17: 26/Sr. 17: 25/NO. '4863796501 P 3
'.
2885

FROM CORPORATI ON TRU8TWILM. TEAM #2 (TUE) 1. 20' 04 17: 27/8T. 17: 25/NO. 4863796501 P 4
'-AGREEMENT AND PLAN OF MERGER
betweell
LEGENT CLEARING CORP.
(a Nebr.qkl eorporatloll)
aDei
LEGENT MERGER CORP.
(a Delaware corpontlon)
This Agreement and Plan of Marga, (this "Agrcemenrj dated as of January (.t., 2004 is
by anc:l between Lelent Clearing Corp., .. Nebraska cotpOratioa. ("LCC and Legcnt
Mergct Corp." a Delaware corporation ("LMC Delaware"). Collectively Lee Nebraska and
LMC Delaware are mened to herein as the "Constituent Corporations".
WHEREAS, the board of directors of each ofLCC Nebraska and LMC Delaware
(i) deem it advisable and in the best interests of eech suoh that Lee Nebraska merge
with ind into LMC Delaware under and pUTSuant to the Pl"ovisioDS of the Nebraska Businou
Cmporarlon Act and of the General CotpOl'atioQ Law of the State of Dclaw8le, and (ii) have
adopted resolutiODS approvina this Agreement and PlaD. of Merpi' and the met,er of LCe
Nebraska with and into LMe Delaware (the "Merger''), as hereinafter agreed aDd specified;
WB.ItB.E.AS, !..Me Dolawart baa an authorized. capitalization couistina of (i) 10.000
shares of common stock, pet valueSO.Ol per share ("LMe Delaware Common ofwhicb
10,000 shares _ issued and outstanding. Immediately prior to the Bft'eotive TUDe (as defined
below)1 all of the issued. ll1d outstandiDg shares of Lee Neln'uka were oWDed by Lcgent Corp .
a Colorado cozpotadon; and
WlIEUAS, Lee Nebraskahas aD authotizcd capitalbaUon of 10,000 shares of
OOI!lJnon stock. par value SO.O 1 1"'1' share, of which 10,000 shares are issued and outsbuu:lmg.
Immediately prior to the Effective Time (as defir&e4 below), all oftlle i$S\lcd MId outttaDdiAl
shares of Lee Nebraska WeAl owned by Lead Corp., a Colorado corporation.
NOW, TmRDORE, in consideration of1he preJ!lises, and tbe covenam5, terms and.
conditions below, the Constituent Entities agree 8$ follOW!:
1. Msrur Ad Surviriog Corpondloa. Lee Nebraska shall merp with and into
LMC Delaware effective as of 12:01 AM EST onJlIluary 21,2004 (tb.. Time").
LMC Delaware shall survive the Merger (the &'Surviving and shall continue to be
governed by the laws of the State ofDelawtre. and the separate corporate existence ofLMC
Deiaware, with all its purposes, objew, rights and privileges. sball continue unaffected and
unimpaired by the Merger. nae separate corporate existence of LCC Nebmsb shall cease
forthwith at the Effective Time.
2886
P.g;2
FROM TRUST WILM. TEAM #2
(TUE) 1.20' 04 17: 27/ST. 17:25;NO. 4863796501 p 5
a. 1#5 oftbe MeDler 01 0IIt!tp41P1 Stosis- The maDDer and basis of
conveJ1ing the shares of Lee Nebraska and LMC Delaware p\ll'SWUlt to the Merger is as follows:
,"._, w_... _, ., __ ,"-
a. At the Effective Time, by virtue of the Merger and without any action on
the part of any h91der thereof, each share of Lee Nebraska capital stock and .outstanding
or held in the treasury of Lee Neb.ruka iJnm.ediately prior to the Effective Time, each certificate
representing shares of Nebraska capital outstanding immediately prior to the
Effective Time. and all rights in respect to any such shares or certitica1es, shall all automatically
be cancelled, null and void and. of no further effect, and no shares of the Surviving Corporation
shall be issued in exchange for any such shares, certificates or rights.
b. At the l:iffective Tune. the shares of capital stock and outstanding
or held in the treasury of LMC Delaware immediately prior to the Effective Time shall remain
outstanding and shall not be affected by the Merger. .
3. Approval of Direetoq. This Agreement has been approved by the board of
directors of Lee Nebraska. in accordance with its Articles of Incorporation and Bylaws and the
provisions of the Nebraska Business ColpOtation Act; anel by the board of directors ofLMC
Delawaret in accordance with its Certificate of Incorporation and Bylaws and the provisions of
the Delaware General Corporation Law.
4. Mprcnra' of SJuu:ehohllr. This Agreanent has heen approved by the sole
shareholder ofLLe Nebraska, in accordance with its Articles of Incorporation and Bylaws and
the provisions olthe Nebraska Business Corporation Act. This Agreement was DOt requited to
be approved by the stoeJcholders of LMC Delaware.
s. Effect 01 M!!'I!r OB NWUD1riDI Corpgption. At the Bffective Time, the
separate existence orLee Nebraska shall cease.
6. Meet g(Msl'I.r og Spryivinl ComordM. At the Effective Time, LMC
Delaware as the survi"Ving entity (i) sball have the rights
t
privileges, imm\ll'lities, and powers, and
be subject to all the duties and liabilities, of a company organized under the Delaware General
Corporation Law, and (ii) shall then 8I1d thereafter possess all the riptst privileges, immunities..
and franchises. of a pnblic as well as a private nature, of each of the Constituent Entities, and all
property, rQI, personal, and mixed, and all debts due on whatever account. including
subscriptions to shares, and all other choses in action,. and everyotber interest of or belonging to
or due to Lee Nebraska shall be deemed to be vested in LMe Delaware without further act or
deed; and the title to any real estate, or any intcreJt therein, vested. in either of the Constituent
Entities shall not revert or be in any way .impaired by reason oftbeMerger. Such vesting shall
be deemed to occur by operation of law, and no consent or approval of any other person shall be
required in connection with any such vesting unless such consent or approval is specifically
required in the event of merger by law or by expl'e!JS ptOvision in any contract, agreem.ent,
decree, order. or other instnunent to wbidl either of the Constituent Entities is a party or by
which either is bound.
7. Liabilities yd QbU.tio.... At the Effective Time, LMC Delaware shall be
responsible and liable for all the liabilities and obligations of Lee Nebraska; and any claim
2887
2
FROM CORPORATION TRUST WILl TEAM #2
(TUE) 1. 20' 04 17: 27/ST. 17: 25/NO. 4863796501 P 6
existing or action or proceeding. whethm' civil or Cl'imiDat pcndlng by Of qaiJ2St Lee Nebntska
may be prosecutcc1 as if the Merger had not tala plIce. Neither the rights of creditori nor any.
liens upon the property of either of the Constituent Entities shall be impaired by such Merler.
8. Ysttu of Properti. Lee Nebraska agrees, from time to tiJUC and u and when
requested by LMC Delaware or its successors or assigns, 10 execute and. deliver or cause to be
execUted and dellvered all such deeds and instrumen1I, assignmenta. or 8SS1l1'8D.CeI in the Jaw, or
to take such action III LMC DcI.ware may deem necessary or desirable to vest in sad confum to
LMC l > e l a w ~ title to and possession of any propeny of Lee Nebrasb acquired or to be
acquired by reason of the Merger, and ita proper oMcers ad directors sball and will tlxecute and
do all sudJ acts and. things and exi!lCute such papers and ciocwneJlt! as art necessary or proper to
carry out the purposes of the Merger.
9. Ccrtifkate of wQI'P9ratiog. The Certificaft: oflncmporalion of LMC
Delaware as in effect immediately prior to the Eft'ective T_ shaD contiIJ1le in fUll force 8Ild
effect upon consummation oithe Merger until such Certificate oflncorporatlon is alteied,
amended or repealed in accordance with its term. or as provided by law.
10. BYlaws. The Bylaws of LMe Delaware. as in existence immediately prior to the
Effective Time, sball be the Bylaws of LMe Delaware upon OOnsummadoD of the Meraer. 1JDti1
such Bylaws are altered, amended Ot repealed in accordance with their terms or as provided by
law.
11. Officer! and Directgg. The officers and directors of LMC Dela\Y8ie existing
immediately prior to 'the EffectiVe Time shall be the officers and diteCtOrs of LMC Delaware
upon the COJll\ln1matiOtl otthe Merger, until the same resilJll or are removed according to LMC
Delaware" Certificate of Incorporation or Bylaws, or as provided by law.
12. Tcl'lliutig. Bithar party hereto may termiu.ta this Agreeznealand the Merger,
for illY reason or no reason, either with or without the ooasent of the temU.natina corporation's
shareholders, and without penalty, after the approval and adoption of the Agreement by each
Consdtuent COIpOtatiou. but before the Eectiye Time by :notifyina th6 other party bereto. In
the event this Apement and the: Merger is terminated pursuant to this Section 12, each
Comtituent Cmporation sball take such actions and file such documents as are IeqUired. or are
necessary tcnninate this Agreement and the Mc:rga- \.IJ1der the applicable law of each Constituent
Corpo11ltinn!s state law that govems the tennination of a merger or ccmsolidatiOD after its
AppIOval but before the effective tUne.
[Signatwe Pqe to Follow]
2888
3
FROM CORPORATION TRUST WILM. TEAM #2
(TQE) 1. '20' 04 17: 28/ST. 17: 25;NO. 4863796501 P 7
IN WITNESS WHEREOF, LMe Del.ware and L Nebraska have cxecuted this
Agreement as of the date fitst above-written.
By:
David L. Wren
Presi CEO
__ _
David L. Wtet1
President, CEO
2889
FROM CORPORATION TRUST WILM. TEAM #2
(TUE) 1.20' 04 17:28/ST. 17:25/NO. 4863796501 P 8
. CERTIFICATE
Michael J. McCloskey. Secretary .of Leaent Cleari.Dg COlp., a cotpQtaUon,
constituent entity to the foregoing Agreoment, hereby certifies that the Agreement was duly
approved and adopted by the board of directors of said corporation on January Ii. 2004, for the
uses d purposes tb rein at
. .
By:
State of Colorado )
J ss.
City and County of Denver )
Subscribed and sworn to before me this 11. day of January ---' 2004, by Michael J.
MCCloskey, Seaetary ofLegent Clearing COlp., a Nebraska corporation.
My commission expires: 0/ .. 2/-2001
My Address is: 2("" S Mikr l)y: JQ,\'(wood CO g0221
Nowy Pu lie
2890
ntoM COHfOHAT iON TRUST WI 1M. TEAM #2
lTUE) 1. 2U' 04 11 : 26/8T. 1'(: r
CD.mrCA'B
Michaell. McClosby, Secrctar.y of Leaent Mqer Corp., a Delaware corporation,
constituent entity to the foregoin. Agreement. hereby certifies that the Agreemeot was duly
approved and adopted by tho board of directors of said corporation 08 January a for the
uses UIpOSCIS therein .
. .
State of Colorado )
) SI.
City and CoUDty of Denver )
Subscribed aDd sworn to before me this of JIIIlJ8l'Y. 2004. by Michael J.
McCloskey, Sccntaryof Legem Merger COIp., a DclawaIe COJpOration.
My commissioD expires: 01-21 '1J:IJ2 .
My Adchess i8: S M;,tr Dc. lL\ B1J12.1

Notary Public
2891
P
FROM CORPORATION TRUST WIut TEAM #2
(TUE) L 20' 04 17: 29/ST. 17: 25,INO. 4863796501 P 11
CEIlTD'lCATE OJ' CONVEBSION
OF. '
LEGENT MER.GU CORP.
'(a Dekware eorporatloll)
INTO'
LEGENT CLEARlNG LLC
(a Delaware IIDaited Dabltty eOJIpuy)
(Pursuentto SeetioD266 ofthc Delaware General CorporadoD Law)
1. The name of the corporation immet1iately prior 1'0 the filing of this Certificate of .
Conversion is:
Legem Merger Corp.
2. The date tbe cotpcmdion's Certificate ofIncorpondion was filed OD is Docember 11,
2003.
3. The original name ofth. cmporatioD IS set rorth in the Certi:6ceteof lDcorporatiOD is:
Legenl Merger Corp.
4. The name of the limited Jiability eOlDpBIlY as set forth in the CertiB.cate of Formation is:
Legent Clcarin& LLC
5. The conversion baa bem approved in aa:or4ance with the provisioDs of Section 266 or
the ne1awave 0e0era1 Corporation I.Jl'fI.
6. The effective date oftbis Ccltificate of Conversion shall be 12:02 AM Eastern Standard
Time on Janwu:y 21, 2004.
[Siguature Pap to Follow]
2892
State of Delaware
Secretary of State
D1v1s10l2 of Corpora t1 012.,
Delivered 05: 26 IiW 01/20/2004
'IUlD 05:26 1iW.01/20/2004
SRV 040040647 - 3738745 'IU
jt'HOM GOJU'OHATlON TRUST WILM. TEAM #2
By:
(TUE) 1.20' 04 17: 29/ST. 1 7,: 25/NO. f U
David.L. Wren
President, CEO
FROM CORPORATION TRUST TEAM #2
(TUE) 1. 20' 04 17: 29/8T. 17: 25/NO. 4863796501 P 13
CERTIFICATE' OF FOaMAnON
OF
LEGENT CLEAlUNG LLC
(pursuant tq SectioD 18-201 of the Delaware Limited Comp.y Aet)
The aD authorized natural person, for the Purpc;JSe offormina a Jimited
liability company under the provisions and subject 1.<? the requirements of the State of Delaware,
hert=by certifies that: .
FIRST; The name limited liability company is Legcnt Clearing LLC
SECOND: Pursuant to the reql,lirements CODtained in Section 18 .. 104 of the Delaware
Limited Liability Company Act, the name oltbc ugent Clearing LLC's
registered agent is the Corporation Trust Company. The address of the
registeIed agent is 1209 Orange: Street, in the City ofWilmingtoD. County
of New Castle, State of Delaware, 19801.
THIRD: The effective date of this Certificate of Formation shall be 12:02 AM
Eastern Standard Time OD January 21, 2004.
[Signature Page to Follow]
2894
State of Delaware
Secretary of State
Division of
Delivered 05:26 PM 01/20/2004
FILED 05:26 PM 01/20/2004
SRV 040040647 - 3738745 FILE
. FROM CORPORATI ON TRUST WI LM. TEAM #2
(TUE) 1. 20' 04 17: 29/8T. 17: 25!NO. 4863796501 P 14
IN WJTN.ESS WHEREOF,.the undersiped has executed . Certificate of Formation of
Legat Clearing LLC this ~ J . 2004.
. B y : ~ Q ~ = ~
David L. Wren
President, CEO
inTCII.. P. C!I9
FROM CORPORATI ON TRUST WILM. TEAM #2 (TUE) 1. 20' 04 17: 29/ST.17 : 25/NO. 4863796501 P 15
Rc: Legent ClearinS LLC
Ladies and Gentlem.era:
LEGENTCLEARING CORP.
UNDERWooD'AvENUE
. Sum 400
OMARA, NE 6.8114
January 20, 2003
Legeai Clearing Corp a Nebraska cc:.porati.on, does hereby t.cmSe1lt to the uso of
the name Legent Clearing llC by Lepnt CJoarina LLC, to the formation and tiling oltho
Certificate of FoJ1l\8tion and Certificate ofCon"ersion ofLegent Clearing ILC with the
Secretary of State of the State of Do_are, and to tbJ qllllifi'aUOD ofLegent Clearinl Ltc as a
foreip limited liability l'ompany under 1he name Legem Clearing UC in. any state wbere
Legent CleariDg LLC applies for such qualification.
Very truly yo

(a No c
By: A---:--
David L. Wren
President
2896
,
l
OPERATING AGREEMENT
OF
LEGENT CLEARING LLC
This LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement',) of Legent Clearing
LLC, a Delaware limited liability company (the "Company"), is made and entered into as of January 21,
2004 (the "Effective Date"), by Legent Corp., a Colorado corporation and the sole member of the
Company (the "Member"), pursuant to the provisions of the Delaware Limited Liability Company Act, as
the same may be amended from time to time (the "Act"), to set forth in their entirety the terms and
conditions with respect to the operation of the Company.
RECITALS
WHEREAS. the Member was (i) the sole shareholder of Legent Clearing Corp., a Nebraska
corporation formed under the Nebraska General Corporation Law ("NGCL") on August 7, 2001 ("Legent
Clearing Corp.") and (ii) the sole stockholder of Legent Merger Corp . a Delaware corporation formed
under the Delaware General Corporation Law (UDGCL") on December 11, 2003 ("Legent Merger Corp'');
WHEREAS, on January 21, 2004, Legent Clearing Corp. merged with and into Legent Merger
Corp., with Legent Merger Corp. as the surviving corporation (the "Merger");
WHEREAS, following the Merger, the Member. as the sole stockholder of Legent Merger Corp.,
and the board of directors of Legent Merger Corp. approved the conversion of Legent Merger Corp. into a
limited liability company formed under the Act;
WHEREAS, on the date hereof, a Certificate of Conversion to Limited Liability Company (the
"Certificate of Conversion") and a Certificate of Formation (the "Certificate ofFonnation") were filed
with the Delaware Secretary of State (the "Conversion") by an authorized person of Legent Merger Corp.;
and
WHEREAS, the Member, by entering into this Agreement, desires to provide for the structure,
ownership, management and operation of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for the agreements set forth hereill,
the Member. intending to be legally bound, hereby agrees that the Company shan be stmctured, owned,
managed and operated as foHows:
ARTICLE}
ORGANIZATIONAL MA TIERS
Section 1.1. Conversion to the Companv; Effect of Conversion; Name. (a) Upon the filing of
the Certificate of Conversion and the Certiticate of Fonnation with the Secretary of State of the State of
Delaware, Legent Merger Corp. shall be converted to the Company and the Company shaH thercatter be
subject to all of the pro\'isions of the Act, including without limitation the fights and of the
Member, except as otherwise expressly provided in this Agreement.
(b) As of the dale hereof: the Company shaH (i) succeed. without other transfer. to all
of the rights. privileges, powers and property of Legent Merger Corp. in the manner more fully set forth
2897
in Section 18-214(f) of the Act and (ii) succeed, without other transfer, to all of the debts, liabilities and
duties of Legcnt Merger Corp. and its predecessor, Legent Clearing Corp., in the manner more fully set
forth in Section 18-214(f) afthe Act and such debts, liabilities and duties may be enforced against the
Company to the same extent as if they had been incurred or contracted by the Company.
(c) The name of the Company is LEGENT CLEARING LLC.
Section 1.2. Purpose and Powers. (a) The purpose of the Company shall be to engage in any
lawful business that may be engaged in by a limited liability company organized under the Act.
(b) The Company shall possess and may exercise all of the powers and privileges
granted by the Act or by any other law or by this Agreement, together with any powers incidental thereto,
so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment
of the business purposes or activities of the Company.
(c) Nothitlg in this Agreement shall be deemed to restrict in any way the freedom of
the Member to conduct any other businesses or activities whatsoever without any accountability to the
. Company or any other Member, ifany.
Section 1.3. Principal Place of Business. (a) The principal office olthe Company, and such
additional offices as the Board (as defined in Section 4.Umay detennine to establish, shall be located at
such place or places inside or outside the State of Delaware as the Member may designate from time to
time.
(b) The registered office of the Company in the State of Delaware is Corporation
Trust Center, 1209 Orange Street in the city of Wilmington, County of New Castle, Delaware 19801. The
registered agent of the Company for service of process at such address is the Corporation Trust Company.
Section 1.4. I!r!!!. In accordance with Section 18-214( d) of the Act, the existence of the
Company shall be deemed to have commenced on December 11, 2003, the date Legent Merger Corp.
commenced its existence. The term of the Company shall continue until the Company ceases to exist ill
accordance with the provisions of this Agreement.
ARTICLE II
MEMBER; OWNERSHIP;
Section 2.1. Membership Interest. (a) Upon the filing of the Certificate of Conversion and
Celtificate of Formation, each share of common stock., par value $0.01 per share, of Legent Merger Corp.
issued and outstanding prior thereto shall. by virtue of the Conversion and without any action by Legent
Merger Corp. or the Company, the holder of such shares or any other person or entity, be converted into
10,000 common units, which 10,000 common units shall constihlte all of the llnitsof the Company (the
"Membership Interest'').
(b) Upon the closing of the transactions contemplated by the Contribution
Agreement among Legent Holding LLC, a Delaware limited liability company ("Legent Holding"), the
Member. Guy A. Gibson, an individual, and New Leg LLC, the Membership Interest in the Company
hdd by tho:: Member shall be transferred pursuant to the terms of the A5signmellt and Assumption
Agreement between the Member and Legent Holding, in substantially the form attached hereto as Exhibit
A ("'Assignment and Assumption Agreement"), by the Member to Legent Holding. Following such
transfer all reterences in this Operating Agreement to "Member" shall be deemed to reter to Legent
Holding.
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Section 2.2. Title to Company Property. All property owned by the Company. whether real or
personal, tangtDle or intangible, and wherever located, shall be deemed to be owned by the Company as
an entity. and the Member shall not have any ownership of such property.
Section 2.3. Liabillty to Third Parties. The Member shall not have any personal liability for
any obligation of the Company, whether such obligations arise in contract, tort or otherwise.
ARTICLEm
CAPITALIZATION, ALLOCATIONS AND DISTRIBUTIONS
Section 3.1. Capital Contributions. The Member shall not be required to make any capital
contribution to the Company.
Section 3.2. Allocations and Distributions. All income, gain, loss, deduction and credit of
the Company, and all distributions of casb and other assets of the Company, whether distributions of
cash flow, capital or otherwise, shall be allocated to the Member. Distributions shall be made to the
Member at the times and in the aggregate amounts determined by the Board.
ARTICLE IV
MANAGEMENT AND OPERATION
Section 4.1. Management bv Boal'd of Managers. (a) Except as specifically set forth herein,
the business and affairs of the Company shall be managed by a Board of Managers (the "Board"), which
shall be appointed by the Member in accordance with this Article 4. Persons appointed to the Board shall
be referred to each as a ''Manager.'' Notwithstanding anything in this Agreement to the contrary,
whenever any approval, consent, waiver, determination or other action is provided herein to be taken by
the Board, any decision by the Board with respect to such approval. consent, waiver, determination or
other action shall be at the Board's sole discretion, which may be determined at any time and from time to
time, and such approval, consent, waiver, determination or other action may be made or withheld based
upon any reason, or based upon no reason at all.
(b) Composition of the Initial Board. As of the date of this Agreement, there shall be
five (5) authorized Managers. each with the right to vote.
(c) General.
(i) The Board shall designate one of the Managers to serve as the Chairman
oHhe Board (the "Chairman"). which shall initially be Guy A. Gibson.
(ii) Qualifications. A Manager need not be a Member.
(iii) Term. Each Manager shall serve until such Manager resigns or is
removed as provided in Section 4. 1 (c)(iv) and his or her successor has been elected and qualified.
(iv) Vacancy; Removal.
(1\) In the case of any \':lcnncy in the office of a Manager, the
Member may elect a successor or successors to hold otlice tor the unexpired tenn of the Manager or
Managers whose place or places shall be vacant.
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(B) Any Manager may be removed during the aforesaid tenn of
office, either with or without cause, by the Member and any vacancy thereby created may be filled by the
Member.
(v) No Liability of Te.rminated Manager. A Person shall not be liable as a
Manager after such Person ceases to be a Manager.
Section 4.2 Action by Managers. If there is more than one Manager, the rights and powers
of the Board hereunder shall be exercised by them in such manner as a majority of the Managers agree.
In the absence of an agreement among all Managers, the following shall apply:
(a) Meetings. Meetings of the Board, for any purpose or purposes, unless otherwise
prescribed by statute, may be called by the Chairman.
(b) Place of Meetings. The Board may designate any place, either within or outside
of Delaware, as the location for any meeting of the Board. If no designation is made, or if a special
meeting be otherwise called, the place of meeting sball be the principal executive office ofthe Company.
(c) . Notice of Meetings. Except as provided in paragraph (d) below, written notice
stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called
shall be delivered to each Manager not less than ten (10) nor more than sixty (60) days before the date of
the meeting, by or at the direction of the Board or Person calling the meeting.
(d) Meeting of all Managers. If the Board shall meet at any time and place, either
within or outside of Delaware, and consent to the holding of a meeting at such time and place, such
meeting shaH be valid without call or notice, and at such meeting lawful action may be taken .
(e) Quorum. A Majority of the Managers, represented in person or by proxy, shall
constitute a quorum at any meeting of the Board. In the absence of a quorum at any such meeting, the
Managers so represented may adjourn the meeting from time to time for a period not to exceed sixty (60)
days without further notice. However, if the adjournment is for more than sixty (60) days, a notice of the
adjourned meeting shall be given to each Manager. At snch adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been transacted at the
meeting as originally noticed. The Managers present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal during S1.lch meeting of that number
of Managers whose.absence would cause less thana quorum.
(f) Manner of Acting. If there is more than one Manager, and a quonlm is present,
the act ofa majority of the Managers who are present, in person or by proxy, shall be the act of the Board,
unless the vote of a greater or lesser proportion 01' number is otherwise required by the Act. the
Certificate, Of tllis Agreement.
(g) Proxies. At all meetings of the Board, a Manager may vote in person or by a
proxy executed in writing by such Manager or by a duly authorized attorney-in-fact. Such proxy shall be
filed with the Board before or at the time of the meeting and may be of any duration except that a
Manager who shall appear in person at a meeting shall void any outstanding proxy for so long as sllch
l\ofanager I:; in atttlllJullCI!.
(h) Action by Managers Without a Meeting. Action required or permitted to be
taken at a meeting of the Board may be taken without a meeting jf the action is evidenced by one or Illorc
wIitten consents describing the action taken. signed by all Managers. and delivered to the Company for
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inclusion in the minutes or for filing with the Company records. Action taken under this Section 4.2 is
effective when the necessary Managers have signed the consent, unless the consent specifies a different
effective date.
(i) Waiver of Notice. When any notice is required to be given to any Manager, a
waiver thereof in writing signed by the Person entitled to such notice, whether before, at, or after the time
stated therein, shall be equivalent to the giving of such notice.
(j) Telephonic Meetings. With respect to a particular meeting or gen.era11y with
respect to future meetings, the Board may permit any or all Managers to participate in the meeting by, or
may permit the conduct of the meeting through. use of any means of communication by which all
Managers participating may simultaneously hear each other. A Manager participating in such a meeting
is deemed to be present in person at such meeting.
Section 4.3 Authority of the Board. Subject to the limitations and restrictions set forth in
the Act, the Certificate and this Agreement (including, without limitation, those set forth in this Article 4).
the Board shall have the sole and exclusive right to manage the business of the Company and shall have
all of the rights and powers which may be possessed by Managers under the Act and the Certificate
including. without limitation; the right and power, on behalf and in the name of the Company, to:
(a) except as expressly delegated to the officers of the Company in this Agreement,
enter into agreements, execute documents and perform any other acts necessary or convenient, in the
discretion oftbe Board . to engage in the business oftbe Company aspermitted by this Agreement;
(b) institute, prosecute, defend, settle, compromise, and dismiss lawsuits or other
judicial or administrative proceedings brought on or in behalf of, or against, the Company or the Member
in connection with activities arising out of, connected with. or incidental to this Agreement, and to engage
counselor others in connection therewith;
(c) purchase. take, receive, lease or otherwise acquire, own, hold, improve, use and
otherwise deal in or with real or personal property or any interest in real or personal property;
(d) operate. maintain, fmance. improve, construct, own, grant, sell options with
respect to. convey. mortgage, pledge. create a security interest in, lease, exchange. transfer and otherwise
dispose of all or any part of the Company Property;
(e) purchase, take. receive. subscribe for or otherwise acquire. own. hold, vote, use,
employ. seil, mortgage. lend. pJedge, otherwise dispose of and otherwise use or deal in or with other
interests in or obligations of any other Entity;
(t) except as expressly delegated to the officers of the Company. execute any and all
contracts, documents, certifications, and instruments necessary or convenient in connection
with the management, maintenance. and operation of Company Property. or in coimection with managing
the affairs of the Company;
(g) execute, ill furtherance of any or all of the purposes of the Company. any deed,
lease. 1110rtgt.'lgc, deed of trust. mortgage note, promissory note. bill of sale, conlmct, or other instrument
purporting to convey 01' encumber any or all of the Company's property;
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(h) prepay in whole or in part, refinanee. recast, increase. modify, or extend any
liabilities affecting the Company Property and in connection therewith execute any extensions or
renewals of encumbrances on any or aU of the Company's property;
(i) care for and distribute :funds to the Member by we.y of cash, income, return of
capital, or otherwise. all in accordance with the provisions of this Agreement" and perform aU matters in
furtherance oftbe objectives of the Company or this Agreement;
(j) except as expressly delegated to the officers of the Company. contract on behalf
of the Company for the employment and services of employees andlor independent contractors, such as
lawyers and accountants, and delegate to such persons the duty to manage or supervise any of the assets
or operations'of the Company;
(k) except as expressly delegated to the officers of the Company, engage in any kind
of activity and perform and carry Ollt contracts of any kind (including contracts of insurance covering
risks to the Company's property and Company and Member liability) necessary or incidental to, or in
connection with, the accomplishment of the purposes of the Company, as may be lawfuUy carried on or
performed by a limited liability company under the laws of each state in which the Company is then
fonned or qualified;
(I) take, or refrain from taking, all actions, not expressly proscribed or liinited by
this Agreement, as may be necessary or appropriate to accomplish the purposes of the Company;
(m) make guarantees. incur liabilities, borrow money. issue Company notes or other
obligations that may be convertible into other securities oithe Company, or include the option to
purchase other securities of the Company, or secure any of the Company's obligations by mortgage or
pJedge of any of the Company's property. franchises or income;
(n) lend money, invest or reinvest Company funds or receive and hold real or
perSonal property as security for repayment of funds so loaned, invested or reinvested, including, without
limitation. the loans to Managers. the Member, employees and agents; ,
(0) be a promoter, incorporator, general partner. limited partner, member, associate
or manager of any partnership. joint venture, trust or other Entity;
(p) conduct the Company's business, locate its offices and exercise the powers .
granted by the Act and the Certificate within or without Delaware;
(q) engage or appoint and dismiss or terminate ofticers, employees or agents of the
Company. define their duties, fix their compensation and lend them money and credit;
(r) make and ahcr this Agreement consistent with the Certificate or the laws of
Delaware for managing the Company's business and regulating its affairs;
(8) indemnify a Member or Manager or any other Person as and to the extent not
inconsistent with the provisions of the Act or the Certificate; and .
(t) cease the Company's activities and dissolve.
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S ~ o n 4.4 Restrictlons on Authority of Managers. No Manager shall have the authority
to, and covenants and agrees that it shall not, do any of the foUowing acts without the consent of the '
Member.
(a) knowingly do any act in contravention oftbis Agreement or without the consent
of the Member as required by this Agreement;
(b) knowingly do any act which would make it impossible to carry on the ordinary
business of the Company. except as otherwise provided in this Agreement; and
(c)
in any jurisdiction.
knowingly perform any act that would subject any Member to personalliabiIity
Section 4.5 Dnties and ObUgatioos of MapRgen. In addition to such other duties and
obligations as Managers may have, Managers. shall be responsible for the following:
(a) The Board shall take an actions which may be necessary or appropriate;
(i) for the continuation of the Company's valid existence as a limited
liability company under the laws of Delaware and of each other Jurisdiction in which such existence is
necessary to protect the limited liability of the Member or to enable the Company to conduct the business
in which it is engaged; and
(ii) for the accomplishment of the Company's purposes, including the
acquisition, development, maintenance, preservation, and operation of the Company's property in
accordance with the provisions of this Agreement and applicable laws and regulations .
(b) The Board shall be under a duty to perform. the duties of Managers in good faith
and to be the best of their ability, and the Board sh8ll use best efforts to carry out the purposes of the
Company for the benefit of the Member, in a manner they believe'to be in ~ e ,best interests of the
Company and its Member. Each Manager shall have fiduciary responsibilities to the Company.
(c) A Manager shall devote to the Company and apply to the accomplishment of
Company purposes so much of his or her time and attention as in his or her judgment is reasonable
necessary to manage properly the affairs of the Company. '
Seedon4.6
Rieht to Rely 00 Managers.
(a) Any Person dealing with the Company may rely (without duty offurther inquiry)
l1pon a certificate signed by any Manager as to:
(i) The identity of any Manager or the Member;
(ii) The existence or nonexistence of any fact or facts which constitute a
condition precedent to acts by a Manager or whi,ch are in any other manner gcnnane to the affairs of the
Company;
(iii) Thc persons who arc autborized to execute and deliver allY instrument or
document of the Company; or
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(iv) Any act or failure to act by the Company or any other matter whatsoever
involving the Company or the Member.
(b) The signature of any single Manager shall be necessary and sufficient to convey
title to any Company property or to execute any promissory notes, trust deeds, mortgages, or other
instruments of hypothecation.
Section 4.7
Liability and Indemnity of the Managers.
(a) In carrying out duties and exercising powers pursuant to this Agreement, the
Managers shall exercise reasonable skill, care and business judgment No Manager nor any of his or her
agents shall be liable to the Company or the Member for any act or omission based upon errors of
judgment, negligence, or other fault in connection with the business or affairs of the Company so long as
the person against whom liability is asserted acted in good faith on behalf of the Company and in a
manner reasonably believed by such Person to be within the scope of his or her authority under this
Agreement and in the best interests of the Company, but only if such action or failure to act does not
constitute gross negligence or willful misconduct. A Manager shall be entitled to rely upon the reports,
advice and counsel of other professionals, including attorneys and accountants, in exercising his or her
business judgment hereunder.
(b) A Manager is not personally liable for any debt, obligation or liability of the
Company merely by reason of being a Manager and is not liable to the Company or the Member for
monetary damages for conduct as a Manager .. A Manager who performs the duties as Manager in
accordance with this Agreement shall not have any liability by reason of being or having been a Manager.
The Company shall indemnify the Board and make advances for expenses to the maximum extent
permitted under the Act. However, this provision shall not eliminate or limit a Manager's liability for:
(i) Any breach of a Manager's duty of loyalty to the Company or the
Member as described in this Agreement, but subject to the provisions hereof;
(ii) Acts or omissions not in good faith which involve intentional misconduct
or a knowing violation of law;
(iii) Any unlawful distribution under the Act; or
(iv) Any transaction from which the Manager derives an improper personal
benefit, but subject to the provisions hereof.
Section 4.8 Committees. The Board, by voteofa majority of Managers, may from time to
time designate committees, with such lawfully delegable powers and duties as the .Board thereby confer,
to serve at the pleasure of the Board. The Board shall, for those cOlllmittees and any others provided for
herein, select persons to serve as the member or members, designating, if they desire, other members as
alternative members who may replace any absent or disqualified member at any meeting of the
committee. Committees shall only have such authority as detemlined by the Board, and in no case shall
such authority exceed the authority granted to the Board. The Board or each committee may detennine
the procedural rules for meeting and conducting its business and shall act in accordance therewith, except
as olhC:lwise provided hcrciu or requireu by law. provision shall be made for notice to members
of each committee of all meetings; one-third (1/3) of the members of the committee shall constitute a
quorum unless the committee sha)) consist or one (1) or two (2) members, in which event, one (1)
member of the committee shall constitute a quonun; and all matters shall be detennined by a vote of the
members of the committt.'C present. Action may be taken by any committee without a meeting if all
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members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the
proceedings of such committee.
Section 4.9
Compensation of a Manager.
(a) Each Manager shall be reimbursed for all reasonable out-of-pocket expenses
incurred in managing the Company within 30 days of delivery of receipts relating thereto. In addition,
Managers shall be entitled to reasonable advances relating to anticipated expenses which would be
reimbursable when incurred.
(b) Managers may be paid reasonable compensation for services rendered to the
Company determined by the Member.
Section 4.10 Appointment and Duties of Officers. The Company shall appoint officers to .
carry on the business of the Company, who shall have the authority to act on behalf of the Company as set
forth in this Agreement.
(a) Number. The officers of the Company shall be a Chairman of the Board, Chief
Executive Officer, President, Vice President, Secretary and Treasurer, each of whom shall be elected by
the Board. Such other officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board. Any two or more offices may be held by the same person.
(b) Election and Term of Office. The officers of the Company to be elected by the
Board shall be elected annually by the Board at the first meeting of the Board held after each annual
meeting of the Member. If the election of officers shall not be held at such meeting. such election shall be
held as soon thereafter as conveniently may be. Each officer shall hold office until his or her successor
shall have been duly elected and shall have qualified or until his or her death or until he or she shall resign
or shall have been removed in the manner hereinafter provided.
(e) Removal. Any officer or agent elected or appointed by the Bom-d may be
removed by the Board whenever in its judgment the best interests of the Company would be served
thereby, but such removal shall be without prejudice to the contract rights, if any. of the persoll so
removed.
(d) Vacancies. A vacancy ill an office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Board forthe unexpired portion of the telm.
(c) Chairman of the Board. The Chainnan oftbe Board shall be chosen from among
the members of the Board. The Chairmm of the Board shall preside at all meetings of the Board and
Member. The Chairman of the Board shall perform such other duties as from time to time may be
assigned by the Board.
(t) Chief Executive Officer. The Chief Executive Officer shall be responsible for
the general management of the affairs of tbe Company and shall perfolm aU duties incidental to this office
which may be required by law and all such other duties as are properly required of this officer by the
Board. The Chief Executive Officer shall make reports to the Board aud the Member, and shall see that
all ord.! .. ii al1d resolutions of til\! Board and of any committee th\)rt!of are carrit:o into c11t:ct. The Chief
Executive Officer shall,. in the absence of the Chairman, preside at all meetings of the Member and of the
Board. The Chief Executive Officer may also serve as President, if so elected by the Board. He or she
may sign, with the Secretary or any other proper officer of the Company thereunto authorized by the
Board. any deeds. mortgages, bonds. contracts, or other instmments which the Board has authorized to be
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executed, except in cases where the signing and execution thereof shall be expressly delegated by the
Board or by these Bylaws to some other officer or agent of the Company. or shall be required by law to be
otherwise signed or executed. Without limiting the foregoing, the Chief Executive Officer shall
(i) when present, and so long as the Chief Executive Officer is a Manager of
the Company, preside at all meetings of the Board and the Metnber of the Company and to prepare the
agenda for such meetings;
(il) effectuate this Agreement and the decisions of the Board;
(iii) direct and supervise the operations of the Company pursuant to
guidelines and parameters established by the Board;
(iv) establish charges for services and products of the Company as may be
necessary to produce adequate income for the efficient operation of the Company in accordance with any
parameters set forth by the Board, including, without limitation, any operating budget for the Company
approved by the Board;
(v) set and adjust wages, rates of pay, bonuses, or other employee
compensation for all personnel of the Company in accordance with the operating budget of the Company;
(vi) appoint. hire, and dismiss all personnel of the Company and regulate
tlleir hours of work and job responsibilities;
(vii) purchase from others. at the expense of the Company, contracts of
liability, casualty, and other insurance which the Board deems advisable, appropriate, or convenient for
the protection of the assets or affairs of the Company or for any purpose convenient or beneficial to the
Company. including insurance against liabilities asserted against the Board and officers of the Company
and incurred by them in such capacities;
(viii) enter into such agreements, contracts, documents, aud instruments with
such parties and to give such receipts, releases, and discharges with respect to all of the foregoing and any
matters incident thereto as the Chief Executive Officer deems, in his reasonable discretion, to be in the
reasonable best interests of the Company; provided. however, that notwithstanding the foregoing, any
agreements, contracts, documents or instrument to be entered into by the Company involving amounts on
all aggregate basis in excess of $500,000 shall require the prior approval of the Board;
(ix) to make such elections under the tax laws of the United States, the
several states, and other relevant jurisdictions as to the treatment of items of Company income, gain, loss,
deduction, and credit, and as to all matters relevant thereto, as the Chief Executive Officer believes to be
in the reasonable best interests of the Company; and
(x) to pertorm any and all other acts and execute any and all other
documents and instrUments as the Chief Execlltive Officers deems advisable, appropriate, or convenient
to carry out the purposes of the Company. .
(g) President. The President, subject to the dircctionoftllc ChicfExlXutivc Officer,
shall in general supervise nnd control all of the business and affairs of the Company. The President shall.
in dle absence of the Chief Executive, preside at all meetings of the Member and of the Board. He or she
may sign. with the Secretary or any other proper officer of the Company thereunto authorized by the
Board, any deeds, mortgages, bonds. contracts, or otller insuuments which the Board has authorized. to be
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executed,. except in cases where the signing and execution thereof shall be expressly delegated by the
Board or by these Bylaws to some other officer or agent oftbe Company, or shall be required by law to be
otherwise signed or executed; and in general shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board tiom time to time ..
, (h) Vice President In the absence of the President or in the event ofhis or her death,
inability or refusal to act, the Executive Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties of the President, and when so
acting. shalt have all the p o \ ~ r s of and be subject to all the restrictions upon the President. Any Vice
Presidentniay sign. with the Secretary or an Assistant Secretary. certificates fOT shares of the Company;
and shall perform such other duties as ftom time to time may be assigned to him or her by the President or
by the Board.
(i) Secretary. The Secretary shall: (i) keep the minutes of the Member'S and of the
Board' meetings in one or more books provided for that purpose; (ii) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by,law; (iii) be custodian of the corporate
records and of the seal of the Company and see that the seal of the Company is affixed to all docunlents
the execution of which on behalf of the Company under its seal is duly authorized; (iv) keep a register of
the post office address of the Member which shan be furnished to the Secretary by the Member; (v) sign
with the President, or aVice President, certificates for shares of the Company, the issuance of which shall
have been authorized by res01ution of the Board; (vi) have general charge of the unit transfer books of the
Company; and (vii) in general perform all duties incident to the office of Secretary and such other duties
as from time to time may be assigned to him by the President or by the Board.
(j) Assistant Secretary. In the absence of the Secretary. the Assistant Secretary shall
pjrlorm the duties of the Secretary and when so acting shall have the powers of and be subject to all of
the restrictions placed upon the Secretary, and shall perf011ll such other duties as ftom time to time may
be assigned to him or her by the Secretary or by the President or the Board.
(k). Treasurer. TbeTreasurer shall: (i) have charge and custody of and be responsible
for all funds and securities of the Company. receive and give receipts for moneys due and payable to the
Company from any source whatsoever, and deposit all such moneys in the name of the Company in such
banks, tniSt companies or other depositories; and (ii) in general perfonn all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned to him or her by the
President or by the Board.
(I) Assistant Treasurer. (n thc absence ofthc Treasurer, the Assistant Treasurer shall
perform thc duties of the Treasurer and when so acting shall have the powers of and be subject to aU of
the restrictions placed upon the Treasw-cr. and shan perform such other duties as froID time to time may
be assigncd to him or her by the Treasurcr or by the President or the Board.
(m) Salaries. The salaries of the officcrs shall be fixed from time to time by the
Board and no officer shall be prevented from receiving such salary by reason of the fact that he or she is
also a Manager of the Company.
ARTICLE V
BOOKS AND RECORDS
SectionS.l Tax Treatment. Unless otherwise determined by the Member, the Company
shall be a disregarded entity for U.S. federal income tax purposes (as well as for any analogous state or
11
2907
Jocal tax purposes), and the Member and the Company shall timely make any and all necessary
and filings for the Company treated as a disregarded entity for U.S. federal income tax purposes (as well
as for any analogous state or local tax purposes).
Section 5.2. Fiscal Year. The fiscal year olthe Company shall end on the 31st day of December
of each year.
ARTICLE VI
DISSOLUTION, LIQUIDATION, AND TERMINATION
Section 6.1. Dissolution. The Company shall be dissolved and its affairs shall be wound up
upon the first to occur of any of the following:
(a) the unanimous written consent of the Member; or
. (b) the entry of a decree of judicial dissolution under Section 18-802 of the Act.
Section 6.2. Liquidation and Termination. On dissolution of the Company, the Member
shall appoint one or more persons as liquidators oftbe Company. The liquidators shall forthwith
commence the winding up of the Company's business and the liquidation of its property. All
proceeds from the sale or disposition of the property of the Company shall, to the maximum extent
permitted by law, be applied as follows: .
(a) All oftbe Company's debts and liabilities shall be paid and discharged in the
order of priority provided by law; and
(b) The balance shall be distributed to the Member.
The liquidator(s) may make distributions of the Company's assets in kind. The choice of
which, if any, Company assets are to be distributed in kind shall be within the sole discretion of the
liquidator(s). The costs of liquidation shall be borne as a Company expellse. Until final distribution,
the liquidator(s) shall continue to operate the Company properties with all the power and authority of
the Board hereunder.
Section 6.3. No Restoration of Negative Capital Accounts. Except as required under
applicable laws of the State of Dela ware, or in respect of any negative balance resulting from a
distribution in contravention of this Agreement, at no time shal1 a Member with a negative balance in
its capital account have any obligation to restore such negative balance.
Section 6.4. Cancellation 0.' Filings. Upon completion of the distribution of Company
assets as provided in Section 6.2 hereof, the Company is terminated, and the Managers shall file a
certiiicate of cancellation with the Secretary of State of the State of Delaware and shall take such
other actions as may be necessary to terminate the Company.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1 Notices. Except as otherwise expressly provided in this Agreemcnt. all notices.
demands. requests. or other communications required or permitted to be given pursuant to applicable
law or this shall in writing and shall be given eilher (a) ill perSOll, (b) by United States
mail, cCltified or registered, return receipt requested, postage prepaid, (c) by prepaid tclegram, telex.
12
2908
'')
cable, telecopy, or similar means (with signed confirmed copy to follow by mail in the same m8JlJler
as prescribed by clause (b) above) or (d) by expedited delivery service (cbarges prepaid) with proof
. of delivery, to the Member at the address as shown in the books and records of the Company.
Seedon 7.2. Amendment. This Agreement may be changed, modified or amended by any
instrument in writing duly executed by the Member.
Seetion 7.3. Entire Agreement. This Agreement constitutes the entire agreement with
respect to the subject matter hereof and supersedes any and all prior and contemporaneous contracts,
undmtandings, negotiations and agreements with respect to the Company and the subject matter
hereof, wbether oral or written.
Section 7.4. SeverabUltv. Every provision in this Agreement is intended to be severable. If
any term or provision hereof is illegal or invalid for any reason whatsoever. such illegality or
invalidity shaJl not affect the validity of the remainder of this Agreement.
Seetion 7.5. Governing Law. This Agreement shall be governed. by and construed in
accordance with the laws of the State of Delaware without regard to the principles of conflicts of laws
thereof.
Section 7.6 Limited Liability Company. The Member intends to form a limited liability
company and does not iritend to form a under the laws of the State of Delaware or any other
. laws.
IN WITNESS WHEREOF. the undersigned has duly executed this Agreement tile date first
set forth above.
MEMBER:
LEGENT CORP.
By: Guy A. Gibson
Its: President, CEO
13
2909
TabC
Exhibit 94 M (b)
2910
EXHIBITB
Registrations and Licenses of Lcgent
2911
Schedule 3.14(b)
LICENSES
Licenses:
1. Approval from the United States Securities and Exchange Commission to conduct
business as a broker-dealer.
2. Membership Agreement with FINRA (flkla National Association of Securities
Dealers).
3. Each of the foreign qualifications set forth on Schedule 3.l(c).
4. Memberships in each of the following organizations:
a) Municipal Securities Rulemaking Board
b) Depository Trust & Clearing Corporation
c) National Securities Clearing Corporation
d) Options Clearing Corporation
e) BATS Exchange
t) Boston Options Exchange
g) Chicago Stock Exchange
h) International Securities Exchange
i) NYSEArca
Failure to Comply with Licenses:
None.
2912
Schedule 3.l(c)
FOREIGN QUALIFICA nONS
Legent Clearing is qualified to do business in all 50 states of the United. States, the District of
Columbia and Puerto Rico.
2913
TabC
Exhibit 94 M (c)
2914
EXHIBITC
Schedule 3.13
2915
Schedule 3.13
LITIGATION MATTERS
Specified Litigation Matters
1. Carthew, Christopher v. Milestone Securities, Legent Clearing, et al., Case No.
09-01178 filed February 23, 2009, FINRA Arbitration.
2. Global Enterprises Group Holding, S.A. v. Anthony Ottimo, EKN Financial
Services, Inc., and Legent Clearing LLC, Case No. CV-07-4904-TCP-WDW,
filed November 2, 2009 in the United States District Court for the Eastern District
of New York.
3. Black Forest Int'l v. Legent Clearing and Cambria Capital, Case No. 37-2007-
00S2133-CU-BC-NC, filed April 26, 2007 in California Superior Court.
4. Ameriwest Energy v. Legent Clearing, et a1., Case No. 06-CV07-02229, filed
September 28, 2007 in the Second District Court of Nevada.
5. He Wainwright & Co., Inc. v. Legent Clearing, LLC, Case No. 07-03016, filed
October 24, 2007 with FINRA.
6. Goldendale Investments v. Legent Clearing, et aI., Case No. 06-CV-6667, filed
January 4, 2008 in New York Supreme Court.
7. GWS Technologies, Inc. v. Legent Clearing, LLC et aI., Case No. SACV08
00586 CJC (PLAx), filed May 27, 2008 in the United States District Court for the
Central District of California, Southern Division. First Amended Complaint
naming Legent Clearing as a party filed August 7, 2008.
8. EZ Banc Corporation v. Legent Clearing, LLC, Case No. 1:08-CV-20527 ACH,
filed February 28, 2008 in the United States District Court for the Southern
District of Florida.
9. Stem, Philip, as Receiver for Enterprise Trust Co. v. Legent Clearing, LLC, Case
No. 09-CV-00794, filed February 9, 2009 in the United States District Court for
the Northern District of Illinois, Eastern Division, along with various related cases
filed from October 2008 through January 2009 by various plaintiffs who were
clients of Enterprise Trust Co.
10. Penson Financial Services, Inc. v. Jesup & Lamont Securities Corp., and Legent
Clearing, LLC, Case No. 09-01641, filed March 23,2009 with FINRA.
11. Golds v. Legent Clearing, LLC, et al., Case No. 09-05805, filed October 1, 2009
withFINRA.
12. Balistreri, et al. v. Legent Clearing, LLC, Case No. 09-CV.03662, filed June 18,
2009 in the United States District Court for the Northern District of Illinois,
Eastern Division.
13. Brooks v. Legent Clearing, LLC, et at, Case No. RGI0502451, filed March 5,
2010 in the Superior Court of the State of California. This proceeding has been
removed to the United States District Court, Northern District of California, and is
identified by Case No. 4:10-CV-01873 SBA.
2916
Proceedings by Governmental or Regulatory Entities:
Other:
1. FINRA Wells Request related to 2009 annual examination.
2. Acceptance, Waiver or Consent dated December IS, 2005, with fine in the
amount of $40,000, in connection with NASD (nlkla FINRA) Annual Books &
Records Examination February 2004.
3. Acceptance, Waiver or Consent dated January 12, 2009, with fine in the amount
of $350,000, in connection with FINRA Annual Books & Records Examination
April 2007.
1. . Each matter set forth on Schedule 3.18.
2917
---_._-_ ... _ .. _ .....
Schedule 3.18
1. Whittington, Amy J. v. Legent Clearing, LLC, Case No. 1086471, filed August 12.2008
in the District Court for Douglas County,. Nebraska. This proceeding was dismissed by
the Trial Court and the dismissal was affinned by the Court of Appeals. Ms. Whittington
has also made claims of sexual discrimination to the EEOC. Legent has submitted its
position statement to the EEOC. Legent does not expect the EEOC to. take any
unfavorable action.
Please also see Whittington's Claim of Discrimination and Legent's Position Statement which
are attached.
2918
TabC
Exhibit 94 M (d)
2919
EXHmITD
Schedule 3.26(a)
Schedule 3.26(a)
I
CONTRACTS WITH AFFILIATES
1; Management and Expense Sharing Agreement, dated May 19. 2009, between Legent
Clearing and Member. This agreement provides that Legent Clearing will provide
general accounting services for Member. There is no charge for these services. This
agreement will be terminated at or prior to the Closing with no liability to Legent
Clearing, Buyer or Parent.
2921
TabC
Exhibit 94 M (e)
2922
EXHIBITE
Memorandum to Independent Directors
DATE:
TO:
FROM:
CC:
RE:
MAY 21, 2010
UNITED WESTERN BANCORP, INC. AND UNITED WESTERN BANK INDEPENDENT DIRECTORS
GUY A. GIBSON, MICHAEL J. MCCLOSKEY, BENJAMIN C. HIRSH AND JAMES R. PEOPLES
SEE DISTRIBUTION
THE ACQUISITON OF LEGENT CLEARING, LLC
M.ANAGEMENT RECOMMENDATION
Management recommends that the independent committees of United Western Bancorp, Inc. (the
"Company") and United Western Bank (the "Bank") approve the acquisition of Legent Clearing as an
operating subsidiary of United Western Bank for the following consideration:
CASH PURCHASE PRICE
The greater of $13 million or adjusted book value as of the last day of the month
preceding closing, provided that book value may never be less than $10 million.
WARRANTS
3,000,000 warrants to acquire the Company's common stock, par value $0.0001 per
share; the warrants have a three year term and significant dilution protection; the Black
Scholes valuation for these warrants implies a value of $1,645,000; anti-dilution
protection is granted for both price and percentage adjustment in the event that certain
"triggering" issues of common stock are made by the Company at less than book value;
certain usual and customary exclusions from trigger events include shares or options
granted pursuant to approvals by compensation committee of the Company's board of
directors or board of directors' approved incentive plans (e.g., the 2007 plan).
Total cash and warrant value exchanged for Legent Clearing will be $14,645,000 assuming that book
value is a minimum of $10 million after closing adjustments. The cash purchase price is to be adjusted
downward by $1.30 for each dollar that the adjusted book value is less than $10 million. We expect,
however, that Legent Clearing will remain profitable and that adjusted book value will equal or exceed
$10 million at closing. Including the replacement of existing subordinated indebtedness with new equity
from the Bank, the total transaction value is estimated to be $31,149,000 as shown in the following pages.
2924
INTEROFFICE MEMORANDUM CONCERNING LEGENT CLEARING LLC ACQUISITON
MAY 21, 2010
PAGE40F 13
CONFIDENTIAL
IMPACT TO THE BANK
The attached summary financial information presents the following:
a. the base case business plan for the Company and the Bank (the "Base Case");
b. the Base Case adjusted for the Legent Clearing acquisition (the "Legent Case"); and
c. the Legent Case adjusted for a $72 million capital infusion from the Goldman Sachs offering.
THE BASE CASE
Key assumptions in this case are flat loan growth, no growth in assets generally at the
Bank, reduction in Equity Trust deposits as implemented May 3,2010 and Equity Trust
deposits averaging $650 million for 2010, return to profitability in 4Q 2010.
LEGENT CASE
Key assumptions include all of those in the Base Case, plus the acquisition of Legent
Clearing as described above; Legent Clearing customer sweep deposits are brought on
board in the Bank overtime as other deposits are allowed to run off.
GOLDMAN SACHS CASE
The Goldman Sachs Case assumes that the Company raises $125 million and acquires
$51 million of DCS (direct credit substitute) Private Label MBS from the Bank in
exchange for cash at par against the Bank's carrying value; this provides an improvement
in risk based capital ratios; the Company is also assumed to contribute an additional $20
million in cash to the Bank which improves the core and risk based ratios.
Summary sheets reflecting the impact of each case to the Company and the Bank are attached as Exhibit
A.
In summary, the acquisition of Legent Clearing is accretive to the Bank immediately due to the addition
of less costly customer sweep deposits coming from Legent Clearing clients transferred to liabilities at the
Bank. The addition of customer margin loans at the Legent Clearing level adds to the total assets held by
the Bank and thus reduces the Bank's core capital ratio as compared to the Base Case. The acquisition of
Legent Clearing will effectively reduce tangible capital at the Bank due to the goodwill acquired in the
transaction and the intangibles (relating to the 2005 acquisition of Legent Clearing by the Duques group)
already on the Legent Clearing balance sheet adjusted to fair value at our estimated closing date.
This acquisition lends several important benefits to the Bank:
a. it distinguishes the Bank from the hundreds of other banks with lack luster business plans seeking
capital from private equity sources at the same time as the Bank; Goldman Sachs can vouch for
this proposition;
b. this will allow us to capture the capital we need to protect the Bank where other supplicants will
not;
c. it provides the Bank a scalable business with which to grow reasonably priced, controlled
liabilities over the future;
2927
INTEROFFICE MEMORANDUM CONCERNING LEGENT CLEARING LLC ACQUISITON
MAY 21, 2010
PAGE 60F 13
CONFIDENTIAL
DFE DILIGENCE
We have completed our due diligence review of Legent Clearing. The following describes the participants
and actions taken to complete our due diligence review and negotiate the purchase and sale agreement
("Purchase Agreement").
DUE DILIGENCE PARTICIP.ANTS AND PLAN
The principal coordinator for due diligence on behalf of the Company and United Western Bank (the
"Bank") is Michael A. Stallings.
Other Company or Bank participants included:
Guy A. Gibson, Chainnan. of the Board of the Company -general review and oversight and
primary negotiator for Purchase Agreement;
Michael J. McCloskey, Executive Vice President of the Company-general review and oversight-
secondary responsibility for Purchase Agreement negotiation;
Benjamin C. Hirsh, Chief Accounting Officer and subject to OTS approval, interim-Chief
Financial Officer of the Company-general oversight of matter with emphasis on SOX, accounting
and related issues coordinating Crowe Horwath review of Legent Clearing accountants, Deloitte
& Touche, audit work papers;
Theodore J. Abariotes-General Counsel, of the Bank-legal matters, litigation and secondary
responsibility for Purchase Agreement;
Thomas J. Kientz, Chief Operating Officer, of the Bank-review of operations and integration
planning for post acquisition operations;
Thomas Loveday, Chief Compliance Officer, of the Company-compliance review including
review ofBSAlAML issues at Legent Clearing;
Marlene Gresh, Senior Vice President, of the Company-human resource review; benefit plan
integration;
Jamey Yancy, Chief Technology Officer, of the Company-IT systems and hardware review;
disaster recovery plan review;
Jeffrey Sime, Vice President Institutional Deposits, of the Bank, and fonner Chief Executive
Officer of Legent Clearing-general review of operations-review of accounting
James R. Peoples, Chainnan of the Board and Chief Executive Officer of the Bank, has been kept
apprised of all developments regarding the Legent Clearing due diligence and Purchase
Agreement negotiations.
2929
INTEROFFICE MEMORANDUM CONCERNING LEGENT CLEARING LLCACQUISITON
MAY 21, 2010
PAGE 70F 13
CONFIDENTIAL
Hunton & Williams-litigation and contract review; principal draftsman of Purchase Agreement and
related documents:
T. Allen McConnell, partner and former General Counsel for United Western Bancorp, Inc.; and
Other H& W associates and partners as needed
Crowe Horwath & Company-review of Deloitte & Touche audit work papers to identify any material
deficiencies manifested during the course of the Deloitte & Touche audits of Legent Clearing:
Raymond Calvey, engagement partner;
Kyle Owens and Scot Cosentine, managers.
On behalf of the independent committees:
Keefe Bruyette & Woods-general review of Legent . Clearing and Legent Clearing operations alongside
the Company and the Bank representatives as well as participation in the negotiations of the Purchase
Agreement and review of the Purchase Agreement.
J. Peter J. Bang, Managing Director; and
Jonathan Hemmert, Associate.
Davis Graham & Stubbs, review of Purchase Agreement
Ronald Levine, Partner
The due diligence review was conducted in person in Omaha, NE on April 25
th
to April 28, 2010. Legent
Clearing provided the due diligence teams with access to all operations and personnel as requested in the
course of this review.
Prior to the on site review, Legent Clearing had created an on-line due diligence room where literally
thousands of pages of documents were provided to us including such things as litigation filings;
correspondent contracts and other materials. This material was reviewed on a topic-by-topic basis as
appropriate for each of the named individuals.
A copy of the due diligence list provided to Legent Clearing for th.eir data room and a copy of the due
diligence plan for the on site visit are attached as Exhibit B for information.
RESULTS OF DUE DILIGENCE REVIE\V
GENERAL COMMENTS
Generally, we found the Legent Clearing facility in Omaha to be less "sharp" than when Mr. Sime ran it
under the prior ownership group. The staff was less crisp seeming and the organizational aura was a trifle
shabby. We attribute this tothe lack of on-site leadership formerly provided by Mr. Sime as an on-hands,
resident Chief Executive Officer in Omaha (Mr. Snne left active employment with Legent Clearing in
2007). Since the termination of the Omaha resident Chief Executive Officer, Francis McPartland, in early
2930
INTEROFFICE MEMORANDUM CONCERNING LEGENT CLEARING LLC ACQUlSITON
MAY 21, 2010
PAGE90F 13
CONFIDENTIAL
As the reader will see, we have already involved the Company's Chief Compliance Officer and he is
comfortable that achieving excellent BSA/AML compliance at Legent Clearing is clearly within reach
and not a high hurdle to overcome. Mr. Loveday has no concern in this regard. Mr. Loveday believes that
Legent Clearing is very close to excellent BSA/ AML compliance today and that moving them to the
"excellent" level will not be overly challenging.
Legent Clearing has been censured by FINRA in the past and FINRA imposed a $350,000 fine against
Legent Clearing for failing to design and implement an adequate AML program in accordance with the
Bank Secrecy Act. This issue has been examined thoroughly. We believe, based on discussions with Mr.
Frankel and David Jarvis, General Counsel to Legent Clearing, that FINRA is misinterpreting certain of
the FINCENregulations to Legent Clearing'S detriment. We are confident that, while these issues are of
no mean concern, Mr. Frankel's leadership will prevent further missteps with regard to BSA/AML issues.
In addition, the reinsertion of Mr. Sime as Chief Operating Officer for Legent Clearing should assist in
alleviating any BSA/AMLissues prospectively.
In November 2009, Legent retained KAPCO Group, a third party broker-dealer compliance firm, to
conduct an Anti-Money Laundering Audit of Legent's AML program. KAPCO confined its review to
AML related functions that occurred during portions of calendar years 2008 and 2009, beginning with the
close of Legent's last 2008 audit (November 12, 2008) and until the close of business on November 14,
2009. KAPCO concluded that the firm has addressed all of the deficiencies noted in the last independent
audit as well as the issues highlighted in the 2008 FINRA examination. In addition, Legent was in the
process of implementing and enhancing certain AML processes and procedures highlighted by KAPCO
. during its audit. KAPCO also concluded that Legent's AML Compliance Program includes the elements
required by the current governmental regulations and FINRA, that no material deficiencies were
identified in any part of the AML Compliance Program, that Legent implemented the required
components of its AML Compliance Program, including a Customer Identification Program ("CIP") and
the self-imposed enhancements and that there were no material deficiencies in the implementation of
Legent's AML Compliance Program.
While Legent has taken remedial action on previously identified regulatory issues; of equal importance
will be the process to eliminate any BSAI AML findings and apply all BSA/ AML best practices for the
industry going forward. The fact that Legent has experienced repeat violations adds additional complexity
and importance to the process. Once the Purchase Agreement is executed, a full BSA/AML Risk
Assessment will be completed by the Company's Chief Compliance Officer and a plan of action will be
formalized. Based on current findings i'om out due diligence review, we anticipate areas of further
improvement to include:
1. Enhancement to the detection and reporting of AML issues - This portion will be completed
through training and enhanced policies and procedures.
2. Develop reporting and monitoring requirements based on risk assessment - Once we
determined the risk levels within certain areas, we can then outline a plan for basic due diligence
requirements for all accounts and also enhanced due diligent for the areas that represent a higher
risk. Procedures would need to be updated to reflect this new process.
3. Enhance SAR process - This would include documentation regarding the decision to file SAR's,
improve quality of submissions and centralize the final submission at the Bank level.
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INTEROFFICE MEMORANDUM CONCERNING LEGENT CLEARING LLC ACQUISITON
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PAGE lOOP 13
CONFIDENTIAL
4. Training - Review of current training and in the higher risk areas, implement job specific training
either through additional on line training or instructor lead courses.
5. Implement deeper investigations within the Customer Identification Program - There are
instances in Legent's AML plan where they indicate they rely on third parties to complete certain
duties as it pertains to the CIP process, but there is no reference that they review the process to
confirm duties are actually performed. This will need to be corrected and enhanced going
forward.
! 6. Review current Legent staffing resources - Hold discussions with staff and review resumes to
determine what strengths and weakness exist from an AML perspective and provide training to
upgrade employee skills on this topic.
7. Training for specific Bank/Holding company staff - Although BSA and AML are very similar
in most aspects across various business lines, there are also minor differences. It is important for
all appropriate staff to remain up to date on industry specific issues and to stay on top of best
practices. The Company's Chief Compliance Officer will look for opportunities for specialized
industry and regulatory. agency specific training for all appropriate personnel.
8. Review of current system capabilities - Look for opportunities for automation and integration
with current Bank practices.
Weare confident that we can keep the Legent AML program in compliance by following the plan listed
above. We will have a better understanding of the measures we need to take with respect to enhancing the
. AML processes and procedures after we conduct our full BSAlAML risk assessment.
While regulatory matters are still open vis a vis a FINRA examination for 2009, we have made what we
think are appropriate reservations in the Purchase Agreement to protect the Bank. Specifically, we have
provided that the first $350,000 of costs associated with dealing with FINRA for administrative reviews
or fmes on this matter will be borne by Legetit Clearing; Legent Clearing and the Bank will share the next
$350,000 of such costs on a 50/50 basis. This procedure is designed to assure that the new Legent
Clearing ownership has an incentive to process the event as cheaply as possible and not simply settle with
the regulator to the detriment of the escrow account. (See also our discussion of litigation matters above
for further discussion of this manner of cost sharing.) These additional costs, if any, may be considered an
addition to the purchase price set forth above.
We are aware that this will be a significant issue for OTS and FDIC and we are moving through Mr.
Loveday to ass,ure that there are no BSAlAML issues under the Bank's ownership.
CORRESPONDENT LOANS
It is not uncommon in the securities clearing business that the clearing firm will advance a loan to its
correspondents or effectively offers to "pay" for business. This is done to attract correspondents to go
through the managed pain of converting their brokers and clients to a third party clearing firm and such
loan amounts are generally recovered from excess trade ticket fees over the life of the contract.
We found that Legent Clearing's underwriting and structuring of these correspondent loans was not up to
Bank standards. There are some $6.5 million of these loans, carried in "sundry" assets on the Legent
Clearing balance sheet which will be subject to downgrade by the Bank when the Bank acquires Legent
2933
INTEROFFICE MEMORANDUM CONCERNING LEGENT CLEARING LLC ACQUlSITON
MAY 21, 2010
PAGE II OF 13
CONFIDENTIAL
Clearing. The sellers believe these assets are carried at fair value on Legent Clearing's books, but we also
believe that their accountants have not focused on these loans due to the fact that the loans are excluded
from regulatory capital for Rule 15c3-1 calculation purposes under the Securities Exchange Act of 1934,
as amended. The prior laxity of Deloitte Touche in regard to these loans should be reversed as of the June
30, 2010 audit since Deloitte will realize that the Bank is relying on the Legent Clearing book value rather
than regulatory net capital for the pricing of this transaction.
For the purposes of expressing our pricing ratios, we have imposed a 23% write down to fair value
against these loans ($1.5 million). To the extent that Bank credit officers impose a lower fair value, this
decline in net book value will effectively increase goodwill.
We intend to underwrite future correspondent loans on a more rigorous basis and have all correspondent
loans approved by the Bank's credit department in nonnal course underwriting.
IT ISSUES
Mr. Yancy found considerable oppOltunity for cost savings in Legent Clearing's IT function, principally
on the hardware and networking sides. Of concern is the fact that Legent Clearing has recently taken
down a material part of their disaster recovery plan infrastructure and not replaced it. We will cure this
immediately upon assuming control of Legent Clearing. We estimate the cost of that solution to add
approximately $125,000 to the total cost of the transaction not including any fees or penalties from the
current service providers. These fees could include early termination fees and or contractual penalties
from the Telco and the co-location providers as well as Thompson Beta Systems the back office provider.
We expect, however, to recover these expenditures within the fIrst 18 months post acquisition from the
synergies of combining the two IT functions.
We attempted to negotiate a price concession from the seller in this regard, but were unsuccessful. We do
not believe that the cost is unreasonable. We are working with Mr. Frankel to assure that there is no
catastrophic failure without back up in the period from Purchase Agreement execution to final closing,
but if there is, and there is a signifIcant impainnent to correspondent relationships, we intend to use our
"material adverse change" clause to discipline the outcome as appropriate since a material fault in service
will erode the value of Legent Clearing.
Mr. Yancy's memorandum regarding Legent Clearing IT issues is attached as Exhibit D.
HUMAN RESOURCE ISSUES
Legent Clearing has insisted that we assume their human benefit plans, principally health, dental, vision
and 401K plans at closing. We intend to do this. We do not believe that there is material risk in doing so.
The health plans will be converted to our plan, adding another 69 lives to our plan (out of a total of 89
FTEs), but the Legent Clearing plan is very rich versus the Bank's plan and we may face an employee
expectation management issue in switching to our plan. We will have to manage to a successful outcome.
As to the Legent Clearing 401K plan, we are requiring a compliance audit to assure there is no lingering
compliance issue that might raise the specter of interest or penalty assessments from the IRS. We do not
expect this to be a material issue.
Compensation at Legent Clearing was reduced across the board by 6% or more in 2009. As profitability
increases at Legent Clearing, we may wish to consider a base increase for Legent Clearing employees. To
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INTEROFFICE MEMORANDUM CONCERNING LEGENT CLEARING LLC ACQUISITON
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PAGE 12 OF 13
CONFIDENTIAL
take the employee base back to parity pre the 2009 reduction will add $380,000 to the Legent Clearing
expenses.
Ms. Gresh's memorandum regarding Legent Clearing HR issues is attached as Exhibit E.
ACCOUNTING AND SOX COMPLIANCE
We will need to integrate the Legent Clearing general ledger at some point. We estimate the cost of this to
be approximately $100,000 which we will bear. As noted above, Crowe Horwath did not fmd any
suggestion that there was any issue with the controls or reporting functions in the Legent Clearing
accounting systems.
Depending on when the acquisition of Legent Clearing is affected, we may have to cause Legent Clearing
to become SOX compliant in 2010. This will cost an estimated $75,000 to $150,000 which will be borne
by us (this is a quote from De10itte who will be in position to design the SOX controls for Legent
Clearing since they will come off of the Legent Clearing audit in favor of Crowe Horwath). The cut off
date for SOX implementation is generally September 30, 2010. We do not believe that this acquisition
will clear regulatory approval with OTS and FDIC before that date, so our current expectation is that
Legent Clearing will be outside the scope of Crowe SOX report for the calendar year 2010. Regardless of
whether or not Legent is included in Crowe SOX review, we will identify what we believe are important
key controls and have them documented and tested internally before the year end.
NEW BUSINESS LINES
Legent Clearing has a plan to increase its stock loan business as well as to engage in high frequency trade
clearing. Weare not concemed about the stock loan business as we think this is easily controlled and
provides additional revenue. We are comfortable that Jeff Sime can establish the necessary policies,
procedures and controls to manage this. business line. The advent of a high frequency clearing offering
will be delayed at our request pending a thorough examination of the risks and rewards associated with
this business. We understand the basic risk/reward proposition for high frequency clearing, but are not yet
assured that Legent Clearing has the proper risk management procedures and employees in place to
discipline this business line.
OTHER DUE DILIGENCE ITEMS NOT Of CONCERN
Generally, all other issues were found to be quite manageable after our review.
THE PURCHASE AGREENIEt"-lT
As to the Purchase Agreement, we have employed our best efforts to negotiate the most prophylactic of
agreements for the Bank. As is normal, there has been considerable give and take between the parties as
to the terms and conditions of the Purchase Agreement.
For example, we spent a considerable amount of time negotiating the identity of which parties will stand
behind the representations and warranties of the seller (e.g., Ric Duques personally versus the soon to be
shell company Legent Group, LLC), the tenn of the survivability of the representations and warranties,
the dollar amount of the cap and baskets for various breaches of representations and warranties and the
amount of the funds placed in escrow for the benefit of the buyer.
2935
TabC
Exhibit 94 M (f)
2937
EXHIBIT F
Confidential Fairness Opinion Materials
CONFIDENTIAL FAIRNESS
OPINION MATERIALS
Preparedfor the Independent Committee of
the Board of Directors ol
ULTRA
June 3, 2010
Legal Disclaimer
The following presentation (the has been prepared by Keefe, Bruyette & Woods, Inc. ("KBW) for the exclusive use of the Independent
Committee of the Board of Directors (the "Board") of Ultra Bancorp. Inc. (Ultra" or the MCompany") in connection with our presentation to the Independent
Committee of the Board at a meeting to be held on June 3, 2010. This Presentation has been prepared in connection with KBW's rendering of an opinion (the
Opinion") to the Independent Committee of the Board of Directors of the Company as to the faimess, from a financial point of view, to Ultra of the
consideration to be paid in the proposed acquisition (the "Transactionft) of all of the outstanding ownership interests of Leader Clearing. LLC ("Leader") and is
qualified in its entirety by the written Opinion delivered to the Independent Committee of the Board of Directors of Ultra, including the assumptions and
qualifications therein. This presentation and the information contained herein have been prepared solely for the Independent Committee of the Board of
Directors of the Company and may not be used by any other person without the express prior written consent of KBW. The Company acknowledges that it shall
not disclose to any person the existence of this Presentation or the Opinion, any view expressed by KBW in connection herewith (in writing or otherwise) or any
portion hereof or thereof, or KBW's engagement, without KBWs express written consent
N This presentation contains information obtained from publicly available sources and from documents provided to KBW by the Company and Leader. In
'f conducting our analyses, we have, with the consent ofthe Company, assumed and relied upon, without independent verification, the accuracy and
o completeness of all of the financial and other information reviewed by us, and we have not assumed any responsibility for independent verification of such
information. KBW did not conduct any independent verification or any appraisal or physical inspection of properties or assets or evaluate the solvency,
financial capability or fair value of the Company or Leader under any state, provincial or federal laws. including those relating to bankruptcy, insolvency or other
matters and is not expressing a view or opining as to the terms of the Transaction or any transaction undertaken by the Company other than as set forth in the
written Opinion. With respect to any financial projections, we also have assumed that they have been reasonably prepared by the management of the
Company on bases reflecting the best currently available estimates and judgments of the Mure financial performance of the Company, Leader, and the
combined enterprise. We express no view as to such projections or the assumptions on which they are based.
The Opinion (and the Presentation) is based upon economiC, market and other conditions as they exist and can be evaluated as of its date (or such other dates
as reflected therein) and includes a range of valuations utilizing several analyses and techniques. KBW did not attribute any particular weight to any analysis
or factor. KBW believes that its analyses must be considered as a whole and that selecting portions of such analyses and the factors considered by it, without
conSidering all such analyses and factors, could create an incomplete view of the process underlying its conclusions. Any analysis of this type is subject to
uncertainties and contingencies all of which are difficult to predict and are beyond the control of the firm preparing the analysis.
Any party receiving these materials (other than the Independent Committee of the Board) is not authorized to rely on these materials for any purpose and may
only use these materials for purposes expressly contemplated by the agreement between KBW and the Company. or any supplemental agreement between
KBW and the Recipient. The Recipient of this information acknowledges and agrees that the presentation materials and financial models used by KBW in
preparing these materials have been developed by and are proprietary to KBW and are protected under applicable copyright laws. Not in limitation of the
foregoing, the Recipient agrees that it will not reproduce or distribute all or any portion of such models or presentations without the prior written consent of
KBW.
I 2
Table of Contents
Section Tab
Transaction Summary 1
Overview of Leader
2
Discounted Cash Flow Analysis
3
N
~
Comparable Companies Analysis
4 .j:::.
I-'
Comparable Transaction Analysis
5
Financial Impact Analysis
6
Valuation Summary
7
Appendix: 8
- Discount Rate Calculation - Capital Asset Pricing Model
- Publicly Traded Comparable Companies
- Overview of Ultra
I 3
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KBW Disclosure
KBW has been hired by the Independent Committee of the Board of Directors of Ultra to advice with respect to this
transaction and to render this fairness opinion and will receive a fee from Ultra for our services
No portion of KBW's fee is contingent upon the successful completion of the transaction
We are not opining on the fairness of the amount or nature of the compensation to officers, directors or employees
or any. class of such persons relative to the compensation to the public shareholders
In conducting our review and arriving at our opinion, KBW has relied upon the accuracy and completeness of all
financial and other information provided to us or publicly available and KBW has not independently verified the
accuracy or completeness of any such information or assumed any responsibility for such verification or accuracy
The issuance of our fairness opinion on the transaction has been approved by our Fairness Opinion Committee.
KBW has not received compensation for investment banking services from Leader in the past twelve months
KBW expects to continue to provide investment banking advice to Ultra in the future for which KBW may receive
compensation
I 4
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Term Sheet Summary
Acquirer:
Sellers:
Transaction:
Consideration:
Key Purchase Agreement
Provisions:
Regulatory Approvals:
Expected Closing:
Drop-dead Date:
Ultra Bank ("Ultra")
Leader Group, LLC ( "Leader") and Henry C. Duques ("Duques")
Acquisition of 1 00% of the outstanding membership interests of Leader Clearing. LLC
(i) $13.0 million in cash at closing(1), (ii) $2.7 million in Ultra common stock, (iii) $16.5 million
advance to pay down subordinated debt and (iv) payment of $1.4 million in accrued interest
$6.0 million escrow; cost-sharing agreements on litigation I regulatory representations and
warranties
Customary regulatory approvals, including ors, FDIC and FINRA
3rd Quarter 2010
October 31, 2010 (extendable for pending regulatory approval)
(1) Based on the greater of adjusted book value at closing or $13 million; if adjusted book value at closing is less than $10 million. the $13 million threshold value is reduced by 1.3 times the 6
difference between $10 million and adjusted book value (see p.7 for adjustments)
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(1)
(2)
(3)
(4)
Purchase Price Summary
Target Purchase Price ("Threshold Value")
Mnimum Adjusted Book Value at Closing
Book value at 3/31/10
Less: Receivables adjustment (1)
Less: Decrease in investments (2)
Adjusted book value (3)
Plus: value of shares
Plus: assumption of subordinated debt
Plus: payment of accrued interest
$13,000,000
10,000,000
14,629,884
(911,000)
(750,000)
12,968,884
2,700,000
16,500,000
1,418,096
Aggregate consideration value $33,618,096
Reflects Newbridge debt converted to stock
Value of Newbridge stock dividend to Leader Group
Ultra believes that Leader's auditors will write off a $3.3 million CIG correspondent note, in which case adjusted book value would be $9.7 million and the estimated cash portion of the purchase
price would be $12.6 million
Based on the greater of adjusted book value at closing or $13 million; if adjusted book value at closing is less than $10 million. the $13 million threshold value Is reduced by 1.3 times the
difference between $10 million and adjusted book value
I 7
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IX)
(1)
(2)
(3)
(4)
(5)
(6)
Transaction Valuation Summary: Implied Multiples
Leader
Metric Multiple
Revenue
1Q Run Rate
FY2010E
FY2011E
EBITDA
FY2010E
FY2011E
Book Value @ 3131/10
Book value
Post-money book value
Core deposit premium @ 3/31/10
Annualized first quarter 2010 Leader metric assuming Leader acquisition (excludes TradeKing)
Annualized fourth quarter 2010E Leader metric assuming Leader acquisition (excludes TradeKing)
$22.6 (1)
$22.9 (2)
$25.2
$3.5 (2)
$11.1
$13.0 (3)
$29.5 (3X4)
$346.3(5)
Reflects $0.9 million of Newbridge debt converted to stock and $0.75 million of Newbridge stock dividend to Leader Group
Reflects $16.5 million advance for subordinated note as a part of the transaction
1.5x
1.5x
1.3x
9.6x
3.0x
2.6x
1.1x
2.33%(6)
Leader deposits and customer credits available for sweep to Ultra Bank at 3/31/10; excludes TradeKing
Defined as intangibles acquired I deposits and customer credits available for sweep to Ultra Bank (after TradeKing departure); acquired intangibles adjusted for reduction in correspondent loan
value; deposits and customer credits available for Sweep excludes thasa ralated to TredeKing
1
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Transaction Detail
Indemnity
- Leader Group and Duques, jOintly and severally, indemnify Ultra for qualifications relating to the following ("Special
Indemnity Claims"):
i. breach of Fundamental representation or warranty;
ii. breach of certain covenants (2 year non-compete; confidentiality; and no negotiation)
iii. equity interest holder claims;
iv. regulatory claims (100% less than $350,000; 50% between $350,001 and $700,000; 0% in excess).
- All other matters for which indemnification is available will be indemnified solely by Leader Group
N - General indemnity bucket: $100,000 (tipping bucket)
1..0
~ - General indemnity cap: $6 million
Representations and Warranties
- As described in stock purchase agreement
Closing Conditions and Covenants:
- Parties shall have obtained all approvals necessary, including DrS, FDIC and FINRA
- DrS will classify Leader's margin loans and comparable assets as.Regulation r assets with a 20% or lower risk-weighting
Transaction Costs:
- Cash purchase price to be reduced by any Leader transaction costs
- Each side pays its own legal costs
Break-Fee:
- None
Drop-dead Date:
- October 31,2010 (extendable for. pending regulatory approval)
111
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Discounted Cash Flow Assumptions
The Discounted Cash Flow utilizes Ultra management projections
Key assumptions:
- Weighted average cost of capital(1): 15.2%
- 2014E reVenue growth rate: 10.0%
- 2015E revenue growth rate: 5.0%
- Projected 2014E+ EBIT margin(2): 48.1%'
- Increase in working capital per incremental dollar of revenue: 15.0%
- Terminal EBITDA multiple: 6.0x
- Transaction closing: 9/30/10
- 2014E+ tax rate(3): 30.0%
- Capital expenditures equal to depreciation and amortization
In addition, the following includes a sensitivity analysis around the terminal EBITDA multiple, WACC and the-2014E-
2016Egrowth rate
(1) See appendix for calculation
(2) Equal to 2013E EBIT margin
(3) Increased.tax rate due to decrease of loss carry-forward benefit
115
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Sensitivity Analysis
Sensitivity Analysis
:E
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:2
-
., ';; $966
.
$108.3
$119.9
$131.6
$88.4
$89.8
$91.1
$92.4
$91.0 $85.9 $81.1 $76.7
$101.9 _ $90.6 $85.6
$112.8
$123.7
$91.5
$92.9
$94.3
$95.7
$106.2
$116.4
$94.6
$100.1
$109.6
$97.7
$99.2
$94.5
$103.3
$100.7
$102.4
$97.5 $100.8 $104.0
$99.0 $102.3 $105.6
117
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Publicly Traded Comparable Companies: Analysis
KBW believes there are few true public peers for Leader
- Penson Worldwide. Inc . as the only public clearing firm. is the closest proxy
- Other public comparables include financial technology companies offering securities transaction processing or related
services
" Automatic Data Processing. Inc.
j;>- Broadridge Financial Solutions. Inc.
" DST Systems, Inc.
j;>- Fiserv, Inc.
j;>- SEllnvestments Company
1
19
Publicly Traded Comparable Companies: Trading Metrics
Stock Mkt Ent rEV I EBlrDA rEV I Revenue GAAP PIE '10-'11 Mktl
Price($) 52Week Cap Value '10E '11E '10E '11E '10E '11E PEG Book
Symbol 5/28/10 High low (MM) ($MM) (X) (X) (X) (X) (X) (X) (X) (X)
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Altomatic Data Processing, Inc. ADP 40.88 45.74 26.46 19.938 18.014 8.8 7.9 2.0 1.9 172 16.1 2.6 3.5
Broadridge Financial Solutions. Inc. BR 19.12 24.02 15.19 2,542 2,719 5.5 4.5 1.1 0.9 12.6 10.8 0.8 3.0
DST Systems, Inc. DST 38.32 47.49 34.61 1,747 2.949 6.9 6.7 1.9 1.9 9.3 9.2 4.8 3.0
Fiserv, Inc. FISV 47.55 55.27 40.85 7.015 10,113 7.5 7.1 2.4 2.4 11.9 10.8 1.2 2.3
SEllnwstments Company SEIC 21.09 24.43 14.75 3,860 3,573 9.1 8.0 3.9 3.3 18.3 15.6 1.1 4.2
Source: FactSet and SNl Financial; market data as of 5/28110; fmancial data as of the most recently reported period
(1) Based on annualized fourth quarter metric
(2) Rellects $0.9 million of Newbridge debt converted to stock and $0.75 million of Newbridge stock dividend to Leader Group
120
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Comparable Transactions: Analysis
Examined selected announced securities clearing. processing and brokerage transactions since 1997
Reviewed:
- Announced transaction values
- Mix of consideration
- Multiple of revenue
Calculated comparable multiples for transaction based on Leader transaction value
. 122
Comparable Transactions
(SUS in millions)
Company Names Date of Announced Deal Value I Deal Value I
Acquirer Target Announce Value L TM Revenue Book Value
Penson Worldwide, Inc. Ridge clearing contracts 11/212009
$65.0 (1)
0.9x na
Intemational Assets Holding Corp. FCStone Group, Inc. 7/1/2009 $122.5 0.4x 0.7x
Plains Capital Corporation First Southwest Company 11/11/2008 $n.o * *
N
$10.8 (2)
\.0 Penson Woridwide, Inc. First Capitol Group LlC 11/30/2007 0.9x na
Q)
I-'
Penson Woridwide, . Inc. Goldenberg, Hehmeyer & Co. 11/612006
$35.0 (3) 2.3x 1.2x
Ameritrade Holding Corp. TradeCast Inc. 211412001
$74.0 (4) 5.4x 5.8x
Fiservlnc. SHC Financial Inc. 314/1997 $211.0 2.6x 2.3x
Source: Company filings and SNL Financial
Indicates confidential information included in summaI}' information
(1) Based on announced acquisition ranga of $60 million - $70 mUlion (to be adjusted at closing based on 0.9x annualized run rate of revenues for all accepted correspondents); concurrent with 10-
year outsourcing contract of back ofIica technologies to Ridge
(2) Transaction value excludes performance-based cash earn out provisions for threa years
(3) Transaction value excludes threa-year cash eamout provision for 25% of pre-tax earnings
(4) Includes 10% eamout proviSion 123
(5) If CIG correspondent note is written off. deal value I book value would be 3.4x
2
Financial Impact Analysis: Transaction Accretion / Dilution
Key Assumptions:
Transaction closes 9/30/2010
Ultra becomes settlement bank for Leader deposits
Equity Trust deposits reduced from $658 million to $330 million and held constant
(in mil/ions)
Revenue
Net interest income $64.8 $1.5 $66.3 $71.8 $6.5 $78.3
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for loan loss (23.7) (23.7) (1.8) (1.8)
1.0
> >
0)
, " , '.
Non-interest income (2.4) 42 1.8 15.6 18.8 34.3
w -- . - . , .
Total revenue 38.6 5.7 44.3 85.6 25.2 110.9
Total non-interest expenses 82.3 5.1 87.4 74.4 15.0 89.4
Pre-tax income (43.7) 0.7 (43.1) 11.2 10.3 21.5
Taxes (2.6) 0.1 (2.5) 2.2 2.1 4.3
Net income- ($41.1) $0.6 ($40.6) $9.0 $8.2 $17.2
Avg. FD shares outstanding 29.5
30.0 (2) 29.6
31.8 (2)
Earnings per share ($1.40) ($1.35) $0.30 $0.54
Leverage Ratio
Core Capital Ratio 8.20% 7.66%

8.89% 8.68%
lier 1 Capital Ratio 10.86% 10.78% 11.95% 12.35%
Total Capital Ratio 8.55% 7.05% 9.53% 8.05%
(1) Leader contribution only for Q4 2010 (assumes deal closes 9/30/10) . 125
(2) Assumes $2.7 million in shares issued at closing basad on 1Q.day VWAP at signing; assumes $1.21 10-day VWAP at 5128110; additional shares outstanding for 25% of 2010E and 100% of 2011 E
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Valuation Summary
Methodology Range
$125.0
$112.8
$100.0
$89.2 $88.6
$75.0 ~ $81.1
$58.8
$50.0
$50.3 $40.1
Aggregate
- - - - - - - - ~ $ 2 ~ - - - - - - - - -
_____________________________________________ Consideraffon
Value = $33.6
$25.0 $18.2 million
$24.5
$0.0 I $9.6
$9.6
ProForma EV I L TM Revenue Price I Book Value EV I FY1 Revenue EV I FY2 EBITDA EV I FYi Revenue EV I FY2 EBITDA
Discounted
Cash Flow (1)
(1) Based on sensitivity analysis range
(2) Excludes TradeCasl multiple outlier
Comparable
Transactions
Penson Worldwide, Inc.
(3) Post-money book value (reflective of replacement of $16.5 million subordinated note held by Leader's majority shareholder into equity) is $29.5 million
127
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Discount Rate Calculation: Capital Asset Pricing Model
Risk Free Rate (1) ....................................... 3.24%
After.;Tax Cost of Debt (5) ........................... 12.6%
Market Risk Premium (2) ~ 6 . 7 %
Cost of Equity (6) ......................................... 16.0%
Beta (3) , ~ O.96
Target Debt I Equity .................................. 31.4%
Risk Premium x Beta .................................. 9.74%
WACC (7) 15.2%
Small Cap Equity Risk Premium (4) 6.3%
CAPM Discount Rate ................................. 16.0%
(1) 10 Year Treaaury rate as of 5128110
(2) Source: Ibbotson Associates Long-Horizon Expected Equity Risk Premium
(3) Median Beta of pubIicaIIy tJaded pear group Including PNSN. ADP. SR. DST. FISV. SEIC; relevered at Ultra target debt I total capital of 23.9%
(4) Ibbotson AIIaociatas size premium for companieawlth values between $1 miUion and $214 miUion
(5) Based on subordinated notes interesl rate
(6) Based on CAPM dlacaunt rate
(7) AssuIllllS 30%. tax rate for debt tax shield
130
Publicly Traded Comparable Companies: Operating Metrics
Penson Worldwide, Inc. PNSN -16.7% 79.5% 22.3% 2.0% 15.0% 8.3% 12.3% 19.2% 53.7% 3.8%
I'V Automatic Data Processing, Inc. ADP -0.1% 11.3% 5.5% 2.0% 8.2% 5.1% 22.9% 23.6% 0.7% 17.0%
\.0
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Broadridge Financial Solutions, Inc. BR 24.2% 22.3% 23.2% 15.2% 22.3% 18.7% 19.4% 19.4% 37.8% 29.9%
0
OST S ~ t e m s , Inc.
OST 5.0% 3.0% 4.0% -2.6% -1.6% -2.1% 27.3% 28.6% 218.8% 20.3%
FiseIV, Inc. FISV 3.3% 5.9% 4.6% 1.4% 3.7% 2.6% 32.5% 33.2% 112.7% 37.5%
SEllmestments Company SEIC -8.3% 13.9% 2.2% -13.6% 18.5% 12% 43.0% 41.4% 20.8% 69.8%
Source: Company filings and Thomson Financial; historicallinancial data as of the most recenUy reported period; estimates as of 5128/10
132
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Publicly Traded Comparable Companies: Penson Worldwide, Inc.
Revenue Segmentation
$300.0 , tt?,:t,t "7
$293.2 $289.9
$250.0 ~
- - -
$200.0 "
-
- - -
$150.0 i $127.9
- - - -
$100.0 . ~
- - - - -
$50.0
$0.0
2005 2006 2007 2008 2009
Clearing and commissions Technology
Interest. net -Other
2009 Revenue by Correspondent Type
Online
21%
Futures
Traditioral relail Other
11% 3%
2009 Revenue: $289.9 million
Non-Interest Revenue per Correspondent
$800
$756
350
-
300 t -:1
til $600
250 1
Til
200 8.
J 1 $400
1501
Cc.
100 ~
j I $200
50
..
u
$0
0
2005 2006 2007 2008 2009
_ Non-Interest Rev. 1 Correspondent-# of Correspondents
180%
160%
140%
120%
100%
80%
60%
4()0,{,
20%
Relative Stock Price Performance
O % ~ I - - - - - - - - - - - - ~ - - - - - - - - - - - - - - r - ~ - - - - - - ~ - - - - - - - - - - ~
5128108 11/26/08 5128109 11126109 5128110
- A:lnson Worldw kle "c. (-44.6%)
- S&P500 (-21.4%)
133
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Overview of Ultra
Ultra Franchise (8 Branches)
Source: SNL Financial and Microsoft MapPoint
Headquarters - Denver, 90
3 ~ largest federal savings bank in the western United
States
$2.6 billion asset franchise focused on Colorado's Front
Range market alid certain mountain communities
Pueblo to Fort Collins and frOm Denver to the
Roaring Fork Valley
Other services:
National Preferred SBA Lender
Treasury management
National trust services
FINRA member firm to provide brokerage and
related services
Ultra plans to grow its network to an estimated 10 to12
locations over the next 3 to 5 years
135
Overview of Ultra (cont'd)
Financial Highlights Loan & Deposits
(Dollars in thousands) Vear Ended December 311 Quarter Ended
Balance Sheet Items 2008 2009 3131/2010
Assets $2,259,429 $2,526,172 $2,609,790
Loan portfolio %ofTotal Deposit base %ofTotal
Net Loans 1,524,921 1,410,862 1,378,884
Deposits 1,724,672 1,993,513 2,100,951
Residential RE 24.3% Demand 2.7%
Equity 101,949 159,651 134,697 Commercial RE 40.7% NOW & Other Trans. 2.1%
ProfttabillW
Core Income $12,797 ($25,267) ($21,600)
Construction 23.7% Savings & MMDA 72.0%
Core ROM 0.58 % (1.01) % (3.01) %
C&I 10.6% Retail lime 3.9%
Core ROAE 11.7 (17.9) (54.0)
Net Interest Margin 3.95 2.98 2.33
N
Efficiency Ratio 72.2 91.9 130.6
U)
Fee Income lOp. Rev. 10.5 11.9 12.2
Consumer & Other 0.7% Jumbo lime 19.3%
-...J Balance Sheet Ratios

Tg. Equity I Tg. Assets 4.51 % 6.32 % 5.16 %
Leverage Ratio 7.65 7.68 NA
Tier 1 Ratio 9.68 8.81 NA
Total Capital Ratio 10.55 10.07 NA
Loans I Deposits 72.5 59.4 54.3
Asset Quality Ratios
Executive Management
1.36 % 3.75 % 4.85 %
NCOs I Avg. Loans 0.03 1.09 2,03
Texas Ratio 9.99 21.50 NA
Yaarsat
Nama (aga} Position Ultra
Market Demographics Guy A. Gibson (45) Chairman of Board 22
Deposita Market Numberot MedlanHH James Peoples President & CEO 1
Coun!X Rank Branches ISOOOI Shere 1%1 Households IncomelSl
Denver. CO 4 3 S1,819,146 8.26 255,831 54,248
Benjamin Hirsh (53) InterimCFO 10
Larimer, CO 20 2 44,009 0.95 115,233 63,515
Michael J. McCloskey (58) Exec. VP & eoo 4
Boulder,CO 21 2 32,513 0.56 115,992 74,083
Gary G. Petak ceo, UWBank 4
Arapahoe, CO 39 9,370 0.10 219,886 71,374
Source: SNL Financial; deposit data as of June 30, 2009
Note: Core Income excludes extraordinary items, and gains/losses on sale of securities
136
Ultra Recent Developments
4130/2010 Scott Wetzel resigned as Chairman. President and CEO
4123/2010 Entered into forbearance agreement with JPM until May 15, 2010
4/21/2010 William Snider retired as CFO of Ultra
1/112010 Appointed Charles Caswell CFO of Ultra Bank
N
~ 12116/2009 Entered into MOU with OTS requiring Ultra to achieve total risk-based capital ratio of 12% and a core
U1 capital ratio of 8% by June 30. 2010
9/17/2009 Priced public offering of 20 million shares of common stock at $4.00 per share
7/112009 Sold MBS with an unpaid principal balance of $47.3 million to an unaffiliated third party; announced
expectations to record a pre-tax loss on the sale of approximately $47 million
6/29/2009 Completed sale of Sterling Trust Co. to Equity Trust Co. for $61.4 million
137
Ultra Balance Sheet
($OOOs)
."'!1I!'.
(SOOOs)
....
Asl!ets Liabilities and Shareholders' Equity
Cash and due from banks $40,203 Uabilities
Interest-eaming deposits 625,518 Deposits $2,100,951
Total cash and cash equivalents 665,721
Custodial escrow balances 40,558
Inwstment securities - available for sale, at fair value 90,629
FHLBank borrowings, net
168,623
Inwstment securities - held to maturity
333,518
Borrowed money
114,031
Loans held for sale - at lower of cost or fair value
279,946
Junior sub. debt owed to unconsold. sub. trusts 30,442
tv
Loans held for inwstment
Other liabilities
20,488
1.0
1,140,552
......,
. Allowance for credit losses
(41,614) Totalliabilities
2,475,093
en
Loans held for inwstment, net
1,098,938
ShareholdelS' equity
FHLBank stock, at cost
9,450
Common stock
3
Mortgage seNcing rights, net
6,nO
Additional paid-in capital
107,545
Accrued interest receivable
7,293
ReJained eamings
32,700
Other receivables
12,793
Accumulated other comprehensiw loss (5,551)
Premises and equipment, net 23,702
Total shareholders' equity
134,697
Bank owned life insurance 26,415
Other assets, net 7,179
Total liabilities and shareholders' equity $2,609,790
Income tax receivable 15,143
Deferred income taxes 10,536
Foreclosed real estate, net 21,757
Total assets $2,609,790
Source: Company filings
138
Ultra Income Statement
Inter .. t and dividend Incam.
Community bank loans $44,889 $58.033 $81.118 $14.341 $14.125
Residential loans 27.882 20.503 . 14.036 4.699 2.854
Other loans 8.779 2.834 1.044 70 283
Inwsbnent securities 38.847 32.169 24,293 6.901 4.589
Deposlls dilAdends 3.162 1.478 1.018 113 610
Totallntel9st and dMdend income 121,559 115.017 101.507 26.124 22.461
Intera.t .xpalll.
Deposita 27.142 12,662 14.566 3,262 3.804
FHLBank bOROwing 17.086 13.769 9.339 2.381 1.053
Other bOROwed money 8.489 8.601 7.266 1.786 1.800
Tolal interest ellPSnse 52.717 33.032 31.193 7.449 6.657
Netlnllmllltincome before prolAsion for creditlosseB 68.842 61,985 70.314 18.675 15.804
ProlAslon for credit 10B&eS 2.312 8.599 35.032 4.181 14,223
N
Net Interest income allsr prolAslon for credlll08ses 66.530 73,386 35,282 14.494 1.561

Non-Intarast Incom.
-...J
-...J
CUBtodlal.admlnlstnltiw and escrow SaMcas 606 664 491 116 85
Loan admlnlstnltion
8,311 4,914 4,290 1.157 1.010
Gain on sale of loans held for sale 2.124 764 2,248 48 596
(Loss) geln on sale of available for sale Inwsbnenl securities 98 (46.980)
Totalolher-ihan-temporalYlmpalrmentlosses (4.110) (42.790) (5.780)
Portion of lollS recogni2Bd In olher comprehensiw income 6.197 477
Net Impairment Iossas recogni2Bd In earnings (4,110) (36.593) (5.303)
Gain on sale of in\estmentln MIIfrixFlnanciat Solutions. Inc. 3.567 3.567
Litigation ss\llemenls 155
Other 3.729 3.072 2.450 810 495
Total non-lnterest (loss) income 13.023 5.504 (70.527) 5.698 (3.117)
Non-Intarest expe ...
Compensation and benefita 21.892 24.868 25.417 6.255 6.001
Subaccounting fees 22.851 17.914 20.442 3,440 6.935
Amorti:zation of mortgage seNdng rights 3.489 2.835 2.507 795 574
Lower of cost or felr wtue adJusbnent on loans held for saia 722 2.793 586 (517) 562
Occupancyand equipment 2.346 2.708 3.388 792 859
Postage and communication 770 910 937 223 251
Professional fees 2.082 3.333 4.043 1.096 780
Mortgage seNcing rights subsaMdng fees 1,931 1.690 1.369 388 317
Redemption of Junior suborolnated debentures 1,487
Other general end admlnistnltiw 8.515 9,279 18,223 2.759 7,213
Tolal nonlntaresl elOpense 66.0B5 66.130 76.B92 15.151 23.492
(Loss) Income from continuing operations before Income lUes 13.468 12.760 (112.137) 5.041 (25.028)
Income IaXprolAslon 3.315 2.635 (32.567) 1.554 19
(Loss) income from continuing operations 10.153 10.125 (79.570) 3.487 (25.047)
Diacont/n .. d operallolw
Dlacontinued operations. neloflax (12) (173) 37.525 (211)
Source: Company filings Net ' .... llncom.
$10.141 $9,1152 ,$42.045) $3,278 ,$25,G47)
139
(1) Includes sale of Sterling Trust Company on 6/26/09
N

"'-J
co
I
j
Ultra Historical Market Performance
Share Price Petiormance
$20.00 7,000
______________
$16.00
$12.00
$8.00
$4.00
$0.00 1- -t -oct:- -b.-A -.. 7 -c - d- --1-:" -"-".tf!9! J1.aj/y" ii
5128108 9128108 1128109 5128109 9128109
- Volume (0008) -Price
1128110
6,000
5,000
4,000 I
-

E
.a
3,000
2,000
1,000

5128/10
140 .
N
\0
......
\0
Ultra Relative Price Performance
120%
100%
80%
60%
40%
20%

&28109
- Ultra (-93.1%)
- S&P 500 (-21.4%)
11/26109 &28110
141
EXHIBITG
Financial Projections
Exhibit G
1. It appears that the fin,ancial projections in the Business Plan under Exhibit F
focuses on Legent itself, while the financial projections in the Business Plan
toward the end of Exhibit G focuses on the Bank itself. Please provide
financial projections (including balance sheet, income statement, and cash flow
statement) for the Bank on a pro forma basis through 2013, assuming the base
scenario of a $125 million capital' raise, on a consolidating basis with the
operations of the Bank and Legent broken out separately and thenfuliy
consolidated.
Based on discussions with private equity investors and more recent operating results for
the bank and Legent through August 31, 2010, the Bank provided updated consolidated
financial projections for its operations and for Legent to the OTS during a meeting dated
September 16, 2010, Changes from the prior Business Plan submitted in Exhibit G
included:
a) The Bank previously submitted its Business Plan Update to the OTS on July
26,2010 in accordance with the Cease & Desist Order ("Order") and was
attached in the Legent application as Exhibit G. This plan included the
acquisition of Legent on a consolidating basis.
b) At the time the anticipated level 0'[ capital to be raised was estimated at $65
million, $125 million and $200 million.
c) Current expectations are for a $200 million capital raise at the minimum.
d) With new capital and outlook for the economy and lines of business in which
the Bank has a competitive advantage, management anticipated additional
growth of GNMA securities and SBA lending in its prospective, post-capital-
raise business plan.
In response to the OTS question above, we are providing the revised business from the
September meeting. The information attached includes financial projections (including
balance sheet, income statement, and cash flow statement) forthe Bank on a pro forma
basis through 2013, assuming the base scenario of a $200 million capital raise, on a
consolidating basis with the operations of the Bank and Legent broken out separately and
then fully consolidated. Key assumptions for the attached business plan included:
a) Capital injected into the Bank $154.97 million
b) Significant de-risk of Bank balance sheet through elimination of non-agency MBS
c) Sale at loss of $65 million in Bank and $9 million at UWBK of all non.,agency
MBS - based on IDC pricing
d) Improved capital ratios ,for the Bank's core and risk based capital ratios
e) Significant deposit growth from Legent's activities anticipated in the next 20-24
. months based on additional new correspondents signed on with Legent and
indications from prospective new correspondents that they are amenable to
potentially converting business to Legent after the acquisition is completed.
2981
76676.000001 EMF_US 32737358vl
EXHIBITH
Projection of Legent Profitability
ExhibitH
Assuming Legent does not add new clients, provide a projection of Legent's
profitability over the next three years following TradeKing's departure. Will
Legent recognize a loss on its investment in TradeKing? .
Response Question .1 :
A copy of the projection of Legent profitability assuming no new correspondent
additions and the departure of Trade King is attached to this response as Exhibit H.
A summary of this same projection scenario was discussed with the Directors of
UW Bank and Legent Special Committee during the special meeting held June 3,
2010. Copies of the minutes of that meeting were provided in Exhibit D of the
application submission dated July 27,2010.
The attached projection, which is a copy ofprojections generated for the UW
Bank and Legent Special Committee, includes a copy of the UW Bank
consolidating financial statements, the UWB standalone financial statements and
the Legent proforma financial statements assuming:
a) No capital raise; .
b) No now correspondent growth from second quarter 2010 through fourth
quarter 2013; and
c) De-conversion of TradeKing business on September 30,2010.
Response Question 2:
Legent does not own or hold an investment in TradeKing. Legent will not
recognize a loss of investment in TradeKing.
2992
TabC
Exhibit 94 N
3001
Office of Thrift Supervision
Department of the Treasury
Western Region
Pacific Plaza, 200t Junipero Serra Boulevard, Suite 650, Daly City, CA 94014-3897 Daly City Area Office
P.O. Box 7165, San Francisco, CA 94120-7165 Telephone: (650) 746-7000. Fax: (650) 746-7001
October 27, 2010
Michael J. Blayney, Esq.
Hunton & Williams LLP
Fountain Place
1445 Ross Avenue, Suite 3700
Dallas, TX 75202-2799
Dear Mr. Blayney:
OTS No .. 06679
NATS No.
This is concerning the Application you filed on behalf of United Western Bank: ("Bank'') in our
Office on August 10, 2010, requesting permission to: (1) acquire Legent Clearing, LLC
("Legent''); and (2) conduct new activities through an operating subsidiary. We have also
received your submission dated October 8,2010, as filed in our Office on October 12,2010, in
response to our comment Jetter issued September 9, 2010. Based upon our review of the
materials submitted, we ask that you respond to the following further comments:
1. Please confirm our understanding that Legent is a ":financial institution" for Bank Secrecy
Act ("BSA'j purposes, and that FINRA is Legent's :functional regulator for BSA purposes.
2. Submit a copy of Legent's current comprehensive BSA and anti-money laundering ("AML")
compliance program.
3. Indicate whether Legent will continue to operate asa separate "financial institution" for BSA
purposes after the proposed acquisition. If so, specify how the Bank's board of directors and
management will oversee Legent's BSAlAML compliance program. If you intend to
consolidate any aspect(s) of Legent's and the Bank's BSAlAML compliance programs,
please describe the nature of such consolidation.
4. If Legent wjll not continue to operate as a separate "financial institution" for BSA purposes,
submit a revised BSAI AML program for the Bank that includes the Legent operations.
5. Exhibit C, Specified Litigation Matters - please provide a brief description as to the nature
and charges of the 13 cases including the damages claimed and Legent's likely
potential dollar exposure.
3002
Michael J. Blayney, Esq. - United Western Bank
October 27,2010
Page 2
6. Exhibit C, Proceedings by Governmental or Regulatory Entities - please provide copies of:
(i) all regulatory actions, notices, and settlements, including the two NASDIFINRA Letters
. of Acceptance, Waiver, and Consent; and (ii) all correspondence between Legent and FINRA
in connection with any actions, including FINRA Case No. 2007007133001.
7. Exhibit C, Schedule 3.18 -- provide a -copy of "Whittington's Claim of Discrimination and
Legenes Position Statement" which is referenced as an attachment to Schedule 3.18.
8. Please provide copies of any _ correspondence with SEC or FINRA in connection with
Legent's noncompliance with reserve requirements under SEC Rules I5c3-I and 15c3-3.
Describe in detail the circumstances relating to such noncompliance, including a discussion
of any involvement by the Bank or its parent company. What remedial measures have been
taken, or are proposed to be taken by the Bank upon acquisition, to prevent a recurrence?
9. Exhibit E, Memorandum to Independent Directors - it is indicated in the _ Litigation section
thafthe total reserve for litigation in the [existing] escrow account is $4,437,500, which[the
Bank] believes to be adequate. However, in the Purchase Agreement section, the Buyer and
Seller has apparently agreed to establish an escrow account in the amount of $6.0 million to
cover Known & Subject Litigation as well as other related expenses. Please clarify as to
whether the two escrow accounts referenced are one and the same. If the same, indicate
which party is responsible for the additional funds to bring the amount up to $6.0 million. If
two separate escrow accounts, discuss how the $6.0 million account will be funded.
10. Exhibit E, Memorandum to Independent Directors - in light of the volume of litigation
against-Legent, discuss whether Legent has been determined to have appropriate cqmmand &
control processes as well as policies & procedures in place. If not, discuss the proposed
remedial actions to be taken upon acquisition.
11. Exhibit E, Memorandum to Independent Directors - provide a copy of the memorandum
referenced in page 5 that identifies and discusses the risks specific to securities clearing
companies such as Legent.
12. Exhibit F, Fairness Opinion Materials - the materials submitted under this exhibit is
apparently a summary of the presentation made to the (independent) board of directors.
Please provide a copy of the actual written opinion itself prepared by Keefe, Bruyette &
Woods that, among other things, provides the final conclusion as to the fairness of the
proposed transaction from a financial point of view ..
13. Exhibit G, F i n ~ c i a l Projections - it is stated that"cu.r.rent expectations are for a $200 million
capital raise at the minimum." Please discuss the circumstances that have resulted in this
more favorable assessment from the initial base case $125 million capital raise.
3003
Michael J. Blayney, Esq. - United Western Bank
October 27, 2010
Page 3
14. Assuming no injection of additional capital to the Bank, provide a pro forma projection of the
Bank's PCA capital ratios immediately following the acquisition.
15. Exhibits G & H - clarify the date of acquisition assumed for the financial projections
submitted under both Exhibits G & H. Aside from the three assumptions specifically listed
under Exhibit H (Le., no capital raise, no TradeKing, no new correspondents), are the bases
. and assumptions' of the financial statements in both Exhibits G & H otherwise the same?
What is the relationship between the . financial statements shown in Exhibit G and those
shown in Exhibit H?
16. Comment 7 - the responsem8kes reference to Schedule 3.4 of the Purchase Agreement,
which had not been provided with either submission. Please provide'a copy of Schedule 3.4
as well as the updated status of all required governmental/regulatory approvals, consents, or
notifications in connection with the proposed transaction, including for filings made with the
FDIC, SEC, and FINRA.
17. Comment 8 - provide a copy of the (draft) resource/service sharing agreement proposed to be
entered into by the Bank and Legent following the acquisition.
18. Comment 20 - our previous comment may not have been sufficiently clear. Please discuss
whether the Bank would still consider the acquisition of Legent based upon other strategic
and/or economic merits even if it were ultimately determined that the associated deposits
would be classified as brokered deposits for FDIC regulatory pUrposes.
19. Comment 21- please discuss how the potential acquisition ofLegent by the Bank originally
came under consideration. Did the Bank initially approach the Sellers or vice versa?
20. It is apparent from the proposal and projections that the amount' of Bank deposits placed
through Legent will increase significantly after the acquisition. Explain how and where
Legent will obtain the substantial amount of new funds.
21. Explain how the Bank will manage the concentration risk from its apparent dependence on
Legent-originated deposits. Provide an assessment of the stability of the deposits placed
through Legent and the empirical basis for such assessment.
22. Discuss the competition that Legent faces from Penson Worldwide, mc., including the future
competition for new business/clients. Aside from TradeKing, is Legent likely to lose other
clients to Penson Worldwide, Inc.?
3004
Michael J. Blayney, Esq. - UnitedWestem Bank
October 27,2010
Page 4
23. Purchase Agreement - please provide a copy of: (i) all Disclosure Schedules referenced in
the Agreement, as delivered at the signing of the Agreement, as well as any subsequent
supplements or amendments thereto; and (ii) any written disclosures provided by the Bank or
its parent company to the Sellers in connection with the Agreement.
24. Purchase Agreement - clarify the identity and ability of the selling parties (e.g., HenryC.
Duques personally, the shell parent company, Legent Group, LLC, etc.) that will stand
behilld the warranties, representations, and obligations of the Seller.
Please be advised that, pursuant to 12 C.F.R. 516.220(a), should you fail to respond fully to the
above within 30 days of the date of this letter, we may deem your Application withdrawn or
consider your non-response to be ground. for an issuance of disapproval or objection. If you have
any questions, please contact me at 650-746-7029.
Sincerely,
owmanW.Lee
Applications Analyst
cc: FDIC-Dallas
3005
Michael J. Blayney, Esq. - United Western Bank
October 27,2010
PageS
bee: P. A. Gerbick
G.A. Scott
N.J. Dyer
K. B. Swanson
S. J. Harris
J. A. Hendriksen
C.T.Coon
J. Miller
3006
TabC
Exhibit 94 0
3007
Office of Thrift Supervision
Department of the Treasury Western Region
Pacific Plaza, 2001 Junipero Serra Boulevard, Suite 650, Daly City, CA 94014-3897 Daly City Area Office
P.O. Box 7165, San Francisco, CA 94120-7165 Telephone: (650) 7467000 Fax: (650) 7467001
November 4, 2010
Michael 1. Blayney, Esq.
Hunton & Williams LLP
Fountain Place
1445 Ross Avenue, Suite 3700
Dallas, TX 75202-2799
Dear Mr. Blayney:
OTS No. 06679
NATS No. R4-2010-0228
This will conftrm our conversation today concerning the Application you filed on behalf of
United Western Bank, Denver, Colorado, in our Office on August 10, 2010, as supplemented
October 12,2010, requesting permission to: (1) acquire Legent Clearing, LLC; and (2) conduct
new activities through an operating subsidiary. As we discussed, the OTS has determined that
the Application raises significant issues of policy. Pursuant to 12 C.F.R. 516.270(c)(2) and
12 C.F.R. 516.40(b), application and notice filings that raise significant issues of law or policy
will be concurrently processed by our Washington D.C. office on a non-delegated basis.
Accordingly, please submit for Washington staff review three complete copies of the subject
Application, including all materials submitted and received to date, to the following: .
Applications Filing Room
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
If you have any further questions, please contact me at 650-746-7029.
~ e l Y '
Bowman W. Lee
Applications Analyst
cc: FDIC-Dallas
Jearlene Miller
3008